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  1. Home
  2. / Investing
  3. / Real Estate

Retail Earnings Roundup: Millennial Power Is at the Heart of Getting It Right

TJ Maxx and Kohls had very different earnings narratives from Macy's and JC Penney. Different customer bases might explain why.
By KEVIN CURRAN Aug 21, 2018 | 05:11 PM EDT
Stocks quotes in this article: TJX, KSS, M, JCP, AMZN

What differentiates earnings' results posted by Kohl's Corporation (KSS) and TJX Companies Inc (TJX) from Macy's  (M) and J.C. Penney (JCP) ?

Capturing the coveted millennial customer base is one clue.

After a week of retail earnings highlighted by the triumphs of TJX and Kohl's contrasted with the stumbles of Macy's and J.C. Penney, an appeal to a younger demographic of consumers appears to be a good barometer of success.

Despite its slight drop this morning, Kohl's shares rose 1.7% on Tuesday after market close and gained over 100% in the past year, while TJX built on an already great calendar year by gaining nearly 5% in trading today after its earnings release.

"We are particularly pleased that we have been attracting a significant share of millennial and Gen Z shoppers among our new customers at each of our divisions," TJX Companies CEO Ernie Herrman said. "Importantly, the majority of new customers at Marmaxx are these younger customers which indeed bodes very well for our future."

Marmaxx is a subsidiary of TJX.

TJX Companies has been the most significant grower in the retail space on the back of this expanded and accelerating consumer base, growing revenue by nearly 20% over the past four years.

Even more remarkably, it has done so without a truly concerted push into digital, which Herrman called "a small piece" of the overall business in the earnings presentation today.

Kohl's, while still growing its appeal to younger shoppers, has embraced e-commerce and online retail to attract younger consumers.

It has also spearheaded millennial trends through partnerships with the likes of Lauren Conrad, actress and entrepreneur, and her signature LC Lauren Conrad Denim Collection for Kohl's. Conrad, 32 years old, has actively listened to customer feedback to design her collection. 

Contrast that with J.C. Penney's broad focus on women and middle-aged moms, and it's clear Kohl's has a much more specific idea of what their customer wants.

During this morning's earnings call, Kohl's CEO Michelle Gass reported "mid-teens" growth in online sales, 50% of which were mobile sales.

Further the company has partnered with online retail king Amazon (AMZN) , forming a symbiotic relationship with the space's biggest fish rather than becoming prey.

By comparison, legacy companies Macy's and JC Penney shares were battered on their earnings, accelerating the decline for the struggling retailers. JC Penney dipped as much as 23% on the news of a poor quarter on earnings last Thursday, while Macy's shares fell off by 13% on Wednesday.

Each company has its own struggles, with debt and leadership issues at JC Penney, however the lack of appeal to younger consumers is choking the company's consumer base as well.

Both companies were grilled by analysts on their inability to generate meaningful growth in digital sales despite strong, stated efforts and investments into online retail.

Despite a strong consumer backdrop, JCP had disappointing same-store sales, which includes a negative trend in digital sales, according to Piper Jaffray analyst Erinn Murphy wrote in a note on August 16 detailing her primary problems with J.C. Penney.

Macy's, while escaping the harsh criticism directed at J.C .Penney due to its strong calendar year so far, has fallen significantly in revenue figures since 2014, leaving its stock just over 50% from its peak value in 2015.

Adding to their problem in millennial market share is TJX, which is poaching its preferred new customers.

Macy's CEO told Washington Post 70% of millennials shop at off-price retailers each month and the company "needed to solve for that", cutting prices specifically to appeal to this demographic. However, as noted, TJ Maxx is simply outpacing Macy's in cultivating this market segment.

As such, while TJ Maxx revenues have grown nearly 20% since 2014, Macy's have fallen by about 9%.

As the struggling retailers look to recover from a comparatively difficult earnings release, it seems their future lies in paying more attention to millennial customers.

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TAGS: Investing | U.S. Equity | Real Estate | Consumer Discretionary

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