WRAPUP 2-Kohl's, Home Depot forecasts quell pre-holiday cheer

(Adds Urban Outfitters results, Breakingviews link; Updates shares)

Nov 19 (Reuters) - Retail heavyweights Kohl's Corp and Home Depot Inc sent a shiver through Wall Street on Tuesday, lodging weak results and annual forecasts that cast more doubt on the health of the U.S. consumer ahead of the crucial holiday shopping season.

Major chains have launched a raft of early promotions ahead of the Thanksgiving and Christmas period, which is six days shorter this year than last, worried about the impact of cut-throat competition and the shift to disruptive online players.

The ongoing U.S.-China trade war has also raised the cost of imported goods for many sellers as they fight to keep prices competitive, putting pressure on margins.

The No.1 U.S. home improvement chain cut forecasts for full-year sales and same-store sales, while department store operator Kohl's cut annual adjusted profit forecast range by at least 40 cents and blamed weakness at its women's apparel business for missing quarterly profit estimates.

After the market close, smaller apparel retailer Urban outfitters reported lower-than-expected quarterly profit and sales, due to deeper price cuts for its women's apparels under its namesake brand, sending shares down 12%.

Home Depot shares closed down 5% and Kohl's nearly 20%, dragging down sector peers and weighing on Wall Street.

"There's intense competition and it's extremely dynamic. Consumers are looking to put more money into savings than before," said Camilla Yanushevsky analyst at CFRA Research.

A clearer picture on the state of the retail sector for the holidays will emerge by the end of the week after big names Macy's, Nordstrom, Gap Inc report.

According to a survey by the National Retail Federation, 79% of Americans are worried that tariffs will make their holiday shopping more expensive and Home Depot on Tuesday echoed similar sentiment. The industry trade body has forecast U.S. holiday sales this year would rise about 4%.

"We fully expect (the environment is) going to maintain within the holiday period because it always brings a new level of promotions," Kohl's Chief Executive Officer Michelle Gass said.

POCKETS OF WEAKNESS

While the U.S. economy continues to expand, doubts about the risk of recession have dogged financial markets all year and a Commerce Department retail report last week suggested consumer spending was slowing faster than economists had expected.

The report also pointed to more weakness in some sectors than others, and results from retailers so far have told a similar story.

Food sales rose 0.5% in October and one of the country's biggest grocer, Walmart, last week said consumer spending was healthy as it raised its earnings forecast.

The Kohl's numbers, however, chimed with a 1% drop in clothing and apparel sales nationally. Sales of appliances and garden equipment, in which Home Depot specializes, were both down around half a percent in the Commerce Department numbers, although the chain said its garden equipment and appliances sales rose.

"Consumers are thinking a bit more carefully about what they buy. That means the holiday quarter won't be perhaps as robust as retailers hope it will be," said Neil Saunders, managing director of GlobalData Retail.

Another hint of the direction of travel was results from off-price retailer TJX Cos Inc, which turned in a strong quarter of growth in customer traffic and sales as shoppers were drawn by the promise of its hefty discounts on upscale but off-season products.

"In a soft economic environment, people are looking for bargains in retail," Yanushevsky said.

(Additional reporting by Uday Sampath in Bengaluru; Editing by Patrick Graham, Sriraj Kalluvila and Arun Koyyur)

11/19/2019 22:17

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