Kohl's, Abercrombie & Fitch stocks rise on surprise profits

Yahoo Finance Live's Akiko Fujita and Seana Smith discuss Kohl's and Abercrombie & Fitch earnings reports and the two companies stock movement.

Video Transcript

SEANA SMITH: One of the big market movers today is some of those retailers. Two of the top trending tickers on Yahoo Finance, Kohl's and Abercrombie.

Kohl's reporting an unexpected profit in the first quarter, shares are jumping. You're looking at a gain of nearly 29%. It also reaffirmed its full-year guidance as it navigates a turnaround.

And Abercrombie and Fitch reporting a surprise profit there, also raising its guidance for the second quarter full-year here. When you take a look at the performance that we're seeing in Abercrombie today, with that stock up 20%, the best day that we've had in just about four years, certainly bucking some of the trend that we have seen in retail, Akiko, when it comes to the cautious consumer.

A number of call outs last week when you take a look at some of those big boxes retailers, Walmart, Target, Home Depot saying that they are seeing a pullback here in consumer spending. When it comes to some of these smaller shops, smaller retailers, Abercrombie, Urban Outfitters, they're really showing that their consumers are still spending in this environment.

AKIKO FUJITA: Yeah. It's interesting to highlight these two names, because these are two companies that are really in the thick of a brand transformation, a turnaround, however you want to characterize it. You talk about Abercrombie and Fitch, certainly that is one of those names. An interesting thing that to me highlighted where things are for them in the company-- you talk about where the consumer is right now, when you look at the strength of their quarter, certainly points to their ability to withstand some of these headwinds with a very hyper focus on who their consumer is.

I also thought it was interesting highlighting some of the overhang. So we haven't necessarily talked about more recently, Seana. I feel like this was the big theme last year, which is the inventory levels, the freight cost, those rates. That has started to clear here, and we saw that with Abercrombie talking about inventory coming down significantly, 20% from where it was a year ago. So they are able to look at that and compete with even some of these economic headwinds.

Kohl's sort of in a similar position, but you could argue they've got a heavier hurdle here, still heavy discounts because of the inventory levels that they were. And you talk about the cautious consumer here, we did hear from CEO Tom Kingsbury, who said specifically the middle income consumer is getting squeezed. And it feels like we have been hearing that over and over throughout these retail earnings calls.

SEANA SMITH: Yeah, certainly. It could be a tough couple of months here for Kohl's as Kingsbury does try to really turn around this retailer. Kohl's, we know that it has struggled now for some time when it comes to inventory levels. That's such an important point to bring up, because we were talking about that quarter after quarter following the pandemic when these companies did stock up on their goods because of what happened with supply chains. They're still working through it.

Yes, they are making progress, with Kohl's inventory there falling 6% on a year over year basis. But the company still having to markdown some of that merchandise that it still can't clear from its shelves, given the fact that consumers are pulling back. Declining same store sales from Kohl's is something to take note of, given the fact that that does point to the cautious consumer, the overall trend here in retail. But it looks like investors focusing on the positives when it comes to Kohl's, the shares up just about 6%