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Stock Market Today: Strong Earnings Boost Retailers

Jim Crumly, The Motley Fool

Investors were indecisive Tuesday, with stocks seesawing between gains and losses throughout the session. The Dow Jones Industrial Average (DJINDICES: ^DJI) and the S&P 500 (SNPINDEX: ^GSPC) closed essentially flat.

Today's stock market

Index Percentage Change Point Change
Dow (0.05%) (13.02)
S&P 500 (0.11%) (3.16)

Data source: Yahoo! Finance.

Communications services was the strongest sector, led by large internet stocks; the PowerShares NASDAQ Internet ETF (NASDAQ: PNQI) rose 1.4%. Energy stocks were the laggards, with the SPDR S&P Oil & Gas Exploration & Production ETF (NYSEMKT: XOP) falling 0.9%.

As for individual stocks, retailers Target (NYSE: TGT) and Kohl's (NYSE: KSS) announced strong fourth-quarter results and positive outlooks for 2019.

Stock graphs and price quotes.

Image source: Getty Images.

Target's online strategy is working

Target reported strong holiday-quarter sales and forecast 2019 profit above analysts' expectations, and shares rose 4.6%. Revenue came in at $22.7 billion, flat when compared with last year's Q4, which had an extra week in it, and adjusted earnings per share grew 12.5% to $1.53. Those results were about what Wall Street had anticipated, but the company guided to full-year adjusted EPS of $5.75 to $6.05, well above the $5.61 analysts were expecting.

Fourth-quarter comparable sales grew 5.3%, thanks to a 4.5% increase in traffic. Target had its strongest traffic and comparable-sales growth in over a decade. The company's digital strategy is helping drive growth, with a 31% jump in digital sales contributing 2.4 percentage points to overall comparable sales. In Q4, 10.4% of sales originated online, with nearly three-quarters of those sales fulfilled in-store. Gross margin has declined as digital sales have increased, but Target successfully cut expenses in other areas to compensate.

For 2019, Target expects low- to mid-single-digit growth in comps and a mid-single-digit increase in operating income.

Strong profit lifts Kohl's shares

Shares of Kohl's jumped 7.3% after the department store chain reported fourth-quarter profit that exceeded expectations and gave strong guidance for 2019. Revenue declined 3.3% to $6.82 billion in the quarter, which was a week shorter than Q4 last year. Non-GAAP earnings per share increased 19.8% to $2.24. Analysts were expecting the company to earn $2.18 per share on revenue of $6.58 billion.

Comparable sales grew 1%, compared to a 6.3% gain in Q4 last year. For the full year, comps grew 1.7%, beating 2017's 1.5% increase. Looking forward, Kohl's expects comparable-sales growth of between 0% and 2% in 2019, and guided to EPS of $5.80 to $6.15, well above the $5.77 analyst consensus estimate.

On the conference call, Kohl's cited high-single-digit growth in activewear as a key driver of success last year. It also announced today that it will extend its active and wellness expansion to 160 of its highest-performing stores and partner with Planet Fitness, which will open gyms next to Kohl's stores, in the company's latest innovative move.

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Jim Crumly owns shares of Target. The Motley Fool recommends PLNT. The Motley Fool has a disclosure policy.