Macy’s and Kohl’s are raising clothing prices to protect profits. Investors see that as a big win.

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  • A round of retail proceeds revealed the divide between retailers trying to keep prices low for customers and those passing on higher costs.
  • Big-box chains Target and Walmart were penalized by investors after they delivered third-quarter earnings reports, despite being on top of analysts’ expectations.
  • Shares of department store operators Macy’s and Kohl’s, TJ Maxx owner TJX and lingerie retailer Victoria’s Secret rose as the companies raised prices and kept inventory tight.

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A roundup of major retail earnings this week revealed a clear divide in the industry between retailers trying to keep prices low for customers amid rising inflation, and those trying to pass costs on to shoppers this holiday season. are able to do.

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Big-box chains Target and Walmart were penalized by investors after they delivered third-quarter earnings reports, despite being on top of analysts’ expectations. Both have adopted a strategy that involves absorbing some of the rising costs of shipping, labor and materials, rather than raising sticker prices. Both businesses cited the need to maintain a reputation for value.

“That’s what we aim for,” Walmart CEO Doug McMillan said in an interview with CNBC’s “Squawk on the Street.” “We save people money and help them live a better life. These are the words that came from [Walmart founder] Sam Walton’s mouth. He loved to fight inflation. so do we.”

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Walmart shares fell 2.6 percent on Tuesday in the wake of the results. Target shares fell 4.7 per cent on Wednesday, the day it was reported. Walmart stock is now down slightly year over year, while Target’s is up about 43%.

But if you’re in the business of selling a lot of apparel, it’s a different story. Shares of department store operators Macy’s and Kohls, TJ Maxx owner TJX and lingerie retailer Victoria’s Secret rose as the companies told Wall Street about their pricing power and reported leaner inventory.

Macy’s shares jumped 21% on Thursday to hit a one-time three-year high of $37.95. Shares of Kohl’s rose more than 10%, while shares of Victoria’s Secret rose nearly 15%. Shares of TJX hit a 52-week high of $76.94 on Wednesday.

“Everyone is concerned about the supply chain and inflation,” said Shimon Siegel, analyst at BMO Capital Markets. “But that’s literally the same thing as tight inventory and high prices.”

“Each of these stock pops represents a re-calibration in the enthusiasm around little relaxation from concerns around inflation,” Siegel said.

Messi says it’s give and take

All retailers are moving into an environment where the cost of everything from fuel to labor is rising. Inflation hit a three-decade high in October. The consumer price index – which includes a mix of products ranging from gasoline and health care to groceries and rent – rose 6.2% year over year, the highest since December 1990.

However, some categories have seen a bigger uptrend than others. For example, food prices rose 0.9% in October – with meat, poultry, fish and eggs collectively up 1.7%. Apparel prices remained stable.

Macy’s, which is primarily an apparel destination, said it has been running tests over the past three months to see which categories of goods consumers are more price sensitive and where buyers are willing to spend a few more bucks.

“We’ve obviously been through these inflationary cycles before, and so we have a lot of experience with that,” Macy’s chief executive Jeff Gennett said in an interview. “And with fashion, sometimes you can outdo it, and you can get a higher ticket and a higher sale price.”

In some instances, however, Janet said Macy’s encounters a “price range” for commodity items such as a basic T-shirt or a pair of denim jeans. “In some cases, we keep retail and we charge higher costs and we charge lower margins,” he said.

Another weapon that Macy’s has in its arsenal is the lean invention, Janet said. This means that he will not have to discount the surplus goods which are not being sold. Macy’s inventories were up more than 19% from year-ago levels in the three-month period ended October 30, but they were down more than 15% on a two-year basis.

Earlier in the week, bloated inventory at Target and Walmart was a red flag for investors. In part, these companies were being activated to make sure shelves were well-stocked for the holidays – and paid for if shoppers were eager to spend in stores in the coming weeks. can go. Walmart said its inventory increased by 11.5% ahead of the holiday season. Target’s inventory was up about 20%, or $2 billion, year over year.

“Retailers don’t want to scare the consumer,” said Naveen Jaggi, president of retail advisory services at commercial real estate firm JLL. “They are willing to manage their costs and price the sale because they don’t want to take inspiration from buying the product.”

But if people don’t show up, or if they show up to Target and Walmart and are looking for something that isn’t in stock, that bloated inventory could be marked down in January.

Specifically, Janet said that while Macy’s employs Markdown, it is offering discounts at the local level rather than the regional level. So the same shirt at a Macy’s shop in Los Angeles may be less expensive than it was five miles down the street, he said.

Buyers are eyeing premium brands at Kohl’s

At Kohl’s, CEO Michelle Gass said its customers are gradually moving toward higher-end goods, as the retailer changes its merchandise assortment. He cited Nike and PVH-owned Tommy Hilfiger as two examples of Kohl’s more premium brands that fetch great prices.

“We still have those great promotions, but fewer of them, so that’s easy — especially for our new customers,” Gass said in an interview. “We now have sophisticated equipment on the latch.”

Like Macy’s, Kohl’s has tightened its grip on inventory, which was down 25% on a two-year basis at the end of the third quarter.

Jefferies analyst Stephanie Wisink said Kohl’s profit margins are improving, with its current inventory position, as well as a lackluster demand environment, allowing the company to sell more goods at full price.

Victoria’s Secret is also selling its bras and underwear at higher prices, which has increased sales. Revenue in the third quarter rose 7% to $1.4 billion from $1.35 billion a year ago. Its inventory decreased by 4% compared to the previous year and 16% as compared to 2019.

TJX CEO Ernie Herrmann told analysts on an earnings call Wednesday that the off-price chain hasn’t seen any push back from consumers over the price hike.

“We thought there would be some things here or there that we would face challenges with, but that hasn’t happened,” he said.

TJX’s comparable store sales rose 14% year over year for the quarter ended October 30, while its net sales climbed 24% to $12.5 billion. Its inventory stood at $6.6 billion, compared to $6.3 billion two years ago.

—CNBC Melissa Repko

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