Retailers Issuing Warning Signs: Best Buy and Kohl's Tumble Amid Guidance Cut with Consumers Cautious on Spending
2min read Despite the strong labor market and ongoing monetary easing, the U.S. retail sector is in trouble now.
Best Buy and Kohl's both cut their annual guidance on Tuesday, signaling that U.S. consumption power is accelerating its deterioration. The two stocks fell 7% and 16%, respectively, in pre-market trading.
Best Buy warned that the holiday shopping season will be marked by aggressive discounts and tepid demand for pricey electronics such as televisions and home theater systems. Despite easing inflation pressures, consumers remain cautious about spending on big-ticket electronics, preferring to wait for deals and promotional events.
The electronics retailer now expects annual comparable sales to decline between 2.5% and 3.5%, compared with its earlier forecast of a decline between 1.5% and 3%. It also projected annual adjusted profit per share of $6.10 to $6.25, down from the earlier target of $6.10 to $6.35.
"Soften-than-expected demand and a combination of ongoing macro uncertainty, customers waiting for deals and sales events, and distraction during the run-up to the election, particularly in non-essential categories," CEO Corie Barry said.
Similarly, Kohl's on Tuesday forecast a bigger drop in annual sales than previously expected, indicating that the department-store chain is struggling to attract shoppers ahead of a deal-heavy holiday shopping season. The department store retail chain posted the eleventh consecutive quarter of decline in same-store sales, with a drop of 9.3%. Higher prices of groceries and other essentials have stretched consumer budgets, particularly among middle-income shoppers, keeping them from splurging on apparel and footwear.
Kohl's also announced the exit of its CEO Tom Kingsbury, who will be succeeded by retail veteran and former Michaels Companies chief Ashley Buchanan in January. The CEO's surprise departure comes as the company enters the critical holiday shopping period, including Black Friday. Under Kingsbury, Kohl's had focused on improving product assortment in home decor, gifts, and kid's clothing categories in response to its slowing core apparel and footwear business.
Customer visits to Kohl's dropped 6.2% in the third quarter on average, compared to a 3% fall in the previous three months, according to foot traffic data from Placer.ai. The company now expects full-year net sales to decline by 7% to 8%, compared to its prior forecast of a 4% to 6% drop. This marks Kohl's third straight quarter with a lowered sales forecast.
Not only Best Buy and Kohl's are suffering. Target, which just released earnings last week, saw its stock tumbling 21% after the report. The retailer cut its full-year profit guidance just three months after hiking that forecast. It now expects full-year adjusted earnings per share to range from $8.30 to $8.90, lower than the $9 to $9.70 per share range shared in August and below the $9.55 per share expected by analysts.
As the holiday shopping season approaches, the outlook for retailers remains uncertain, with weak U.S. consumption and cautious consumer spending casting a shadow over the upcoming Black Friday sales. This could signal something terrible ahead, and investors should remain cautious.