Retailers' results show sharp divide between losers, winners

The divide between retail winners and losers is widening.

That became even more evident Wednesday with the latest batch of earnings reports: Big-box stores and off-price retailers have been responding faster to shoppers' increasing shift online with expanded deliveries and better merchandise. But many mall-based clothing chains and department stores continue to suffer weak sales as they struggle to lure in shoppers.

"There is an increasing polarization in retail," said Neil Saunders, managing director at GlobalData Retail. "It's a vicious cycle, and it's difficult to pull out of the tail spin."

In fact, for the first two fiscal quarters of this year, earnings at off-mall retailers rose 3%, compared with a drop of 29% for mall-based retailers, according to Retail Metrics, a retail research firm, which analyzed results at 105 retailers.

On Wednesday, Target raised its annual earnings guidance after reporting strong sales and traffic. It was helped by its same-day delivery services, as well as a strong lineup of homegrown brands. Lowe's, the nation's second largest home improvement retailer behind Home Depot, blew past Wall Street's second-quarter earnings expectations, buoyed by strong demand for spring goods and sales to contractors.

Both companies' stocks soared.

Earlier this week, Home Depot handily beat second-quarter profit expectations, while Walmart raised its outlook for the year last week and off price chains like T.J. Maxx are also faring well, resonating with shoppers who love to treasure hunt.

But clothing chains and department stores haven't differentiated their merchandise enough, and now discounters are further squeezing them by pushing into more affordable trendy fashions, retail industry analysts say.

Last week, Macy's lowered its annual earnings guidance after its earnings suffered in the second quarter as it slashed prices on unsold merchandise. J.C. Penney's is in worst shape. It posted another quarter of sales declines. Kohl's shares, meanwhile, fell Tuesday after posting a sales decline though business improved later in the quarter.

Nordstrom is expected report declining second-quarter profits and sales late Wednesday.

Saunders and other analysts say that they started to see a clear divide between retail's winners and losers four or five years ago, but that gap has gotten more pronounced because of a combination of factors. For several years, a strong economy provided tail winds to retailers of all stripes, and last year's tax cuts gave merchants a nice sugar high. But as the economy starts developing some cracks, vulnerable retailers will become even more exposed.

Analysts also say that the shift to online shopping keeps accelerating, giving a big advantage to retailers like Target and Walmart who've been able to invest billions of dollars in online deliveries and in their stores. Some mall-based retailers are now looking at other ways to bring in shoppers, including subscription rental services and carving out areas to sell second-hand clothes.

But for some, it may be a case of too little, too late.

"In a world where consumers have more choices than ever, inferior brick-and-mortar experiences will go away," Target CEO Brian Cornell told analysts Wednesday.

Target's comparable store sales, which include online sales, rose 3.4 % as customer traffic jumped 2.4%. Online sales soared 34%. The Minneapolis company raised profit expectations for the year, sending its shares up 19%. Shares in Lowe's Co., which is based in Mooresville, North Carolina, were up more than 10%.

Still, it is an uncertain time for even surging retailers like Target.

The Trump administration has imposed a 25% tariff on $250 billion in Chinese imports. A pending 10% tariff on another $300 billion in goods would hit everything from toys to clothing and shoes that China ships to the United States.

And it appears the retailers that have been winning all along will be the ones to better navigate the tariff storms.

Cornell told analysts that while the trade wars present an additional layer of uncertainty and complexity, he pointed to the company's diverse assortment, deep expertise in global sourcing and sophisticated set of manufacturing partners around the world.

Meanwhile, Macy's said last week that its shoppers don't have an appetite for higher prices in a ballooning U.S. trade war with China. The department store was forced to raise prices on some luggage, housewares and furniture to offset the costs of a 25% tariff implemented in May. Macy's vowed not to increase prices as a result of the 10% tariff, but CEO Jeff Gennette said the company will be speaking with vendors about ways to offset rising costs if the trade war escalates.

Follow Anne D'Innocenzio on Twitter .

WASHINGTON (AP) — Russia has moved some troops onto an airbase in Niger where a small number of U.S. forces remain, but Defense Secretary Lloyd Austin said he doesn't see it as a significant issue. Most American troops left that base in the nation's capital, Niamey, a U.S. official said.

The arrival of Russian trainers in the West African country about three weeks ago came in the wake of Niger’s decision to order out all U.S. troops. The order dealt a blow to U.S. military operations in the Sahel, a vast region south of the Sahara desert where groups linked to al-Qaida and the Islamic State group operate.

The Pentagon has said the U.S. troops will depart but has not provided a timeline.

When Russian troops arrived last month, it was unclear where they were staying. The Niamey base, Austin said late Thursday, is located at the capital city's Diori Hamani International Airport, and “the Russians are in a separate compound and don’t have access to U.S. forces or access to our equipment.”

He said the U.S. will continue to watch the situation but he doesn't see it as a significant force protection issue.

A U.S. official said the Russian forces are on the other side of the Niamey facility, known as Airbase 101, and that other international forces — such as the Germans and Italians — also reside. The official spoke on the condition of anonymity to discuss troop movements. It's unclear how many U.S. troops remain at the Niamey base.

The Russian presence on the base comes as tensions remain high between Washington and Moscow over the ongoing U.S. support for Ukraine's military.

About 1,000 U.S. troops are still in Niger, but the bulk of them moved to what's called Airbase 201 near Agadez, some 920 kilometers (550 miles) away from the capital, not long after mutinous soldiers ousted the country’s democratically elected president last July.

A few months later, the ruling junta asked French forces to leave and turned to the Russian mercenary group Wagner for security assistance.

In October, Washington officially designated the military takeover as a coup, which triggered U.S. laws restricting the military support and aid that it can provide to Niger. Since then, diplomatic efforts to restore ties with Niger have been unsuccessful.

Until recently, Washington considered Niger a key partner and ally in a region swept by coups in recent years, investing millions of dollars in the Agadez base, which has been critical to U.S. counterterrorism operations in the Sahel. The U.S. also has invested hundreds of millions of dollars in training Niger’s military since it began operations there in 2013.

The Pentagon also has said the U.S. will relocate most of the approximately 100 forces it has deployed in neighboring Chad for now. Chad is also considering whether to continue its security agreement with the U.S.

Maj. Gen. Pat Ryder, Pentagon press secretary, told reporters that the departure from Chad "is a temporary step as part of the ongoing review of our security cooperation, which will resume after Chad’s May 6th presidential election.”

FILE - Supporters of Niger's ruling junta gather for a protest called to fight for the country's freedom and push back against foreign interference, in Niamey, Niger, Aug. 3, 2023. Russia has moved some troops onto an airbase in Niger where a small number of U.S. forces remain after most American troops left the base in Niamey, the nation's capital, a U.S. official said Thursday, May 2, 2024. (AP Photo/Sam Mednick, File)