Stocks opened lower but reversed course after the Federal Reserve released notes from its last meeting that eased concerns about rising interest rates. The Dow Jones Industrial Average (DJINDICES: ^DJI) and the S&P 500 (SNPINDEX: ^GSPC) closed up modestly.
Today's stock market
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Data source: Yahoo! Finance.
Rate-sensitive stocks in the utility and real estate sectors led the market. The Utilities Select SPDR ETF (NYSEMKT: XLU) gained 0.9% and the Vanguard REIT ETF (NYSEMKT: VNQ) added 1%.
As for individual stocks, Lowe's Companies (NYSE: LOW) jumped despite reporting disappointing earnings results, and Target Corporation (NYSE: TGT) tumbled on a profit miss.
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Lowe's misses expectations but gets a vote of confidence
Home improvement retailer Lowe's reported first-quarter results that missed expectations, but shares soared 10.4% on a report that activist investor Bill Ackman has taken a $1 billion position in the stock. Sales increased 3% to $17.4 billion, short of the analyst consensus of $17.6 billion. Earnings per share came in at $1.19, 15.5% more than last year's adjusted EPS, but below Wall Street's estimate of $1.25 per share.
Comparable-store sales grew 0.6%, far below the 3.5% increase Lowe's expects for the full year. The company blamed a cold April for slower sales of outdoor products, saying that weather knocked 3 percentage points off comparable sales for the quarter. Comps in May so far have been double-digit positive, according to outgoing CEO Robert Niblock in the conference call.
Gross margin increased 23 basis points from Q1 last year to 34.63%, but would have declined were it not for adoption of a new accounting standard. Looking forward, Lowe's maintained full-year EPS guidance of $5.40 to $5.50, while bumping the outlook for sales growth from 4% to 5% due to the accounting change.
Lowe's results pale in comparison to last week's report from rival Home Depot. That company also saw a negative impact on sales of outdoors goods due to the weather, but managed to grow sales of indoor products enough to have a 4.2% jump in overall comparable sales.
News of a new CEO failed to lift shares yesterday, but the report of Ackman jumping in reversed the sentiment today, and investors seem to be looking ahead to a brighter future for the company.
Target increases traffic but misses on profit
Shares of Target slumped 5.7% after the retailer announced better-than-expected sales on strong traffic gains, but missed profit expectations. Sales increased 3.4% to $16.8 billion while adjusted EPS grew 9.4% to $1.32. Analysts were expecting the company to earn $1.38 per share on revenue of $16.5 billion.
Comparable sales grew 3%, compared with a decline of 1.3% in the period a year earlier, thanks mostly to a 3.7% gain in traffic, the strongest quarterly traffic performance in more than 10 years. Comparable digital channel sales increased 28% and contributed 1.1 percentage points to the overall comp metric. Gross margin fell from 30% in Q1 last year to 29.8%, which the company said in the conference call was below expectations due to a weather-related impact on sales mix.
CEO Brian Cornell was optimistic about Target's outlook. "[O]ur team is delivering excellent execution and guest service every day, and momentum in our traffic has accelerated in the second quarter," he said in the press release. "As a result, we expect Target's second quarter comparable sales growth will move into the low to mid single-digit range, and the midpoint of our second quarter EPS guidance represents approximately 15 percent growth over last year."
Target is seeing the benefit of store remodels and investments in its digital strategy, and while today's sell-off may seem discouraging, the stock had run up 9.6% in the last two weeks, and only gave up part of that gain today.
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Jim Crumly has no position in any of the stocks mentioned. The Motley Fool has the following options: short September 2018 $180 calls on HD and long January 2020 $110 calls on HD. The Motley Fool recommends HD. The Motley Fool has a disclosure policy.