Lowe's & American Eagle: Retailers in focus after earnings

Retail earnings are a mixed bag this quarter, with chains such as Kohl's (KSS), Lowe's (LOW), and Best Buy (BBY) trading lower this morning. Most notably, shares of American Eagle Outfitters (AEO) are diving by over 16% after narrowly topping third-quarter estimates with Wall Street analysts left largely unimpressed by its holiday forecasts and sales growth in its brands.

Yahoo Finance Retail Reporter Brooke DiPalma joins the Live show to discuss American Eagle and Lowe's earnings, taking the temperature of consumer sentiment heading into the busiest time of year for retailers.

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Video Transcript

RACHELLE AKUFFO: Well, we heard from a plethora of smaller specialty retailers this morning getting a pretty mixed picture on results, but all of the stocks are currently lower. Now, when you look at comparable sales, clothing retailers like Abercrombie, Burlington, American Eagle, Dick's seeing traffic up in their most recent quarters. While others like Lowe's, Kohl's, and Best Buy are under pressure.

Now, right now we want to focus on a select few stocks that are trending starting with American Eagle Outfitters. Shares of the clothing retailer are sinking after reporting a soft sales outlook for its holiday quarter. Expecting a high single-digit increase, they also saw sales for this quarter come in slightly lower than expected.

Now we have Yahoo Finance retail reporter Brooke DiPalma with us. So I mean, I was looking at American Eagle here wondering if it was being unfairly punished. I mean it did well on the top and bottom lines, Q3 sales up 5%. But it was that holiday outlook that investors were looking at and also some of the margin pressure.

And I want to just pull something up on the interactive just to give people an idea of the heat map that we're looking at for some of these retailers today. As we can see here, Amazon, as I mentioned, under some pressure already due to what we heard about that report from CNBC. But even if you look at an equal rating here, very little in the green here.

But as you can see some of the top performers here, looking at Dick's and also looking at-- we also saw from BJ's Wholesale Club reporting. But you're seeing a lot of them under pressure. As I mentioned, American Eagle down there at the bottom down about 16 and 1/2% on the day. But year to date, as you can see, up about 18%, so perhaps under some undue pressure. So Brooke, what are some of the stores that you're watching this morning?

BROOKE DIPALMA: Yeah, well, just to jump off that, American Eagle definitely has an interesting year so far. Investors really focus in on that holiday sales outlook. And as you mentioned at the top, it failed to get investors, what you could say, in the holiday spirit, I guess, Rachelle.

The company does expect net sales to be up mid single digits compared to its prior forecast of a low single-digit increase, but that wasn't what Wall Street was looking for. Wall Street wanted more from investors there. They wanted to see a higher increase in same store sales expected into the holiday season. We also saw American Eagle stock surge back in June on expectations that this was going to be a stronger holiday season, that shoppers were getting back out there and going to perhaps bulk up ahead of this season. But guidance did suggest that may not be the case here.

In addition to that, I'm also taking a closer look at Abercrombie and Fitch. We heard similar from them that they expect net sales to be up low double digits in Q4. Now that stock is down as well this morning. They did blow same store sales estimates though. We saw a 20% jump in same store sales with a strong back-to-school shopping season and growth in both the Abercrombie and Fitch and Hollister brand from Abercrombie and Fitch's earnings results.

But once again, it wasn't as much as Wall Street was expecting. And perhaps we're seeing some American Eagle shoppers go to Abercrombie and Fitch here and seeing that trade around as consumers look for the best bang for their buck. And so lots to watch when it comes to these specialty retailers as well.

AKIKO FUJITA: Yeah, another name we're watching today, Brooke, is Lowe's. That also sinking on the outlook.

BROOKE DIPALMA: Yeah, same story there. Once again, it did not wow Wall Street with its fiscal year 2023 guidance. They did lower that guidance due to lower than expected DIY, Do It Yourself sales. They now expect sales of $86 billion. That was down from $87 to $89 billion.

They also expect a sales decline of 5% compared to a year ago. Now it had previously expected a sales decline of 2% to 4%. So this is now lower than that previously expected range. And what we're really seeing here is similar to Home Depot. We're seeing a pinch in that DIY customer.

Now for Lowe's, 75% of its revenue is driven by that DIY customer, 25% is by pros. And so when we're seeing this do-it-yourself customer who really bulked up during the pandemic two years ago start to pull back, we're seeing that reflected in the results today. And they did mention on the call that whenever that DIY customer does become cautious, it does disproportionately affect Lowe's. And so lots of different players as consumers pull back in spending across the board we're seeing here today.

RACHELLE AKUFFO: All right, appreciate that update. We'll continue to follow that topic. Brooke DiPalma there for us.