Target, Kohl's and TJX are hot, but Wall Street is worried about the holidays

Target kicked off a busy earnings day across retail with sales and profit margins that fell short of investors' high expectations.

Despite a robust 5.1% sales gain at stores open for at least a year and 49% digital growth, Wall Street punished Target for its profit margin drop-off. Target's costs are rising as it races to ship more orders online to compete with Amazon. Shares of Target (TGT) fell as much as 13%.

Target expects same-store sales during the holiday season to increase 5% as it cuts prices and invests in convenient new ways to shop. The company is offering free two-day shipping on hundreds of thousands of items to win customers during the holidays, with no minimum purchase required. It has also remodeled stores, added new smaller stores in cities, and rolled out drive-up at 1,000 stores and in-store pickups from online orders.

"I still see a very positive story here for brick-and-mortar retailers that are not anchored to malls," said eMarketer analyst Andrew Lipsman. "Somewhat moderated holiday outlooks — combined with a much more uncertain 2019 environment — are likely behind the near-term sell-off."

Kohl's (KSS) also reported a positive quarter Tuesday, but a similar story played out on Wall Street. Kohl's, which has found creative ways to reformat its stores and drive traffic, tumbled 11%. Investors faulted the company for guidance that came in on the lower end of some analysts' expectations.

Discount powerhouse TJX Companies (TJX), parent of TJMaxx, Marshalls and HomeGoods, reported a 7% rise in same-store sales last quarter as consumers flooded in to find bargains. But TJX and rival Ross Stores (ROST) fell on TJ's sluggish guidance.

Other retailers have been unable to take advantage of the healthy environment. JCPenney (JCP) said last week that same-store sales fell 5.4% last quarter.

"We are over-assorted and heavy on inventory," new CEO Jill Soltau said last week about JCPenney's stores.

Victoria's Secret (LB) and Barnes & Noble (BKS) are also under fire. Victoria's Secret cut its divided and same-store sales dropped 6% last quarter as the brand loses relevance with many women. Barnes & Noble's same-store sales fell 1.4% last quarter.

One company bucking the trend was Best Buy (BBY), which said same-store sales rose 4.3% last quarter, its sixth straight quarter above 4%. The company raised its forecast in anticipation of consumers buying up TVs and electronics this holiday. The stock rose nearly 4%.

"People are going to want to go into Best Buy this holiday season to get some advice, and they'll end up picking up some gifts while they're there," Lipsman said.

Pressure to perform

Investors are stepping up pressure on companies to take advantage of a healthy economy. Wages are rising, unemployment is low, and retail spending continues to rise.

Longtime rivals Toys 'R' Us and Bon-Ton have folded and Sears filed for bankruptcy. That's raising the stakes for retailers to pick up market share left up for grabs.

"We continue to see a very healthy retail environment," Target CEO Brian Cornell told reporters on a call Tuesday. "You saw some of that in our third quarter results."

Walmart CFO Brett Biggs sounded a similar message last week: "Certainly this kind of environment, everybody likes," he said on a reporter call.

Last week, Walmart (WMT) reported 3.4% quarterly growth at stores and boosted its guidance for the holidays, but investors punished the stock for a profit margin miss from fulfilling online orders.

Walmart is trying to ramp up the number of items it sells online while also finding a way to make money off them. Walmart mainly offers highly popular items right now, but those sales carry lower profit margins. "The process takes time, and we're making progress," Walmart CEO Doug McMillon said.

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