Surprise earnings beats from Macy's, Kohl's push retailers higher

Shares of Macy's (M) and Kohl's (KSS) have climbed in morning trading after the retailers surprised investors with earnings that were better than expected. Macy's also announced plans to reduce its store footprint by closing about 100 locations.

MACY'S: Macy's this morning reported Q2 adjusted earnings per share of 54c on revenue of $5.87B, beating analysts' estimates of 45c and $5.74B, respectively. Macy's said comparable sales on an owned plus licensed basis fell 2% in the latest quarter. CEO Terry Lundgren said "that a setback is a setup for a comeback, and we now believe we are set up well to proceed to a comeback," noting that sales strengthened month by month throughout the quarter. Looking ahead, Macy's said it is "confident" in its FY16 guidance calling for adjusted EPS of $3.15-$3.40 and comparable sales on an owned plus licensed basis sales to be down 3%-4%. In addition to earnings, Macy's said it plans to close about 100 full-line stores and will continue to seek partnerships for its flagship locations. Macy's said it will add new vendors shops, enter into more license agreements and increase the size of its staff. The company also said it is in talks to sell its Men's Store on Union Square in San Francisco for redevelopment. In an interview with CNBC this morning, Lundgren commented on the initiatives, saying that "We're a company that doesn't sit still... We're not waiting any longer. We are taking a stance." CFO Karen Hoguet noted that closing stores is "not something we take lightly," but believes "this country is overstored."

KOHL'S: Kohl's mirrored peer Macy's by reporting EPS excluding items of $1.22 on revenue of $4.18B, beating analysts' estimates of $1.03 and $4.18B, respectively. Same-store sales for the period declined 1.8%, but gross margin expanded from last year to 39.5%. Despite the better than expected quarter, Kohl's cut its adjusted earnings forecast for the year to $3.80-$4.00 from $4.05-$4.25, against analysts' estimates of $3.83. Kohl's, like other retailers, has been struggling with its sales, and said on its conference call that it is continuing to see Amazon (AMZN) and other off-price retailers gaining share. In October 2015, Kohl's unveiled the Greatness Agenda, a multiyear plan to return to growth, and said it planned to test smaller-format stores this year. Kohl's said on its call that it is "more convinced" of the role of brick-and-mortar stores in its future and that it does not expect any store closures next year. Looking ahead, Kohl's forecast fall season total sales down 2.6% to up 0.6% and comp sales down 2% vs. last year. Additionally, the retailer yesterday elected Adrianne Shapira, the CFO of fine jewelry luxury brand David Yurman until February, to its board, replacing Dale Jones.

OTHERS TO WATCH: Peer Nordstrom (JWN) reports its quarterly earnings after the close today, while J.C. Penney (JCP) reports tomorrow before the market opens.

PRICE ACTION: In morning trading, Kohl's rose about 13% to $42.94 and Macy's is up 15.5% to $39.27. The companies helped push the broader retail sector higher, with J.C. Penney, Nordstrom, Sears (SHLD), TJX (TJX) and Bon-Ton (BONT) among peers moving higher.