Macy’s, Kohl’s raise prices to protect profits. Investors see that as

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

Big-box chains Target and Walmart were punished by investors after delivering third-quarter earnings reports, despite the results topping analysts’ expectations. Both have adopted a strategy that largely entails absorbing some of the rising costs of shipping, labor and materials rather than raising sticker prices. Both businesses cited the need to uphold a reputation for value.

“That’s our purpose,” Walmart CEO Doug McMillon said in an interview with CNBC’s “Squawk on the Street.” “We save people money and help them live a better life. Those are the words that came out of [Walmart founder] Sam Walton’s mouth. He loved to fight inflation. So do we.”

Walmart shares fell 2.6% on Tuesday in the wake of its results. Target shares tumbled 4.7% Wednesday, the day it reported. Walmart’s stock is now slightly down year to date, while Target’s is holding on to a gain of 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 Kohl’s, TJ Maxx owner TJX and lingerie retailer Victoria’s Secret rallied as the companies touted their pricing power to Wall Street and reported leaner inventories.

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

“Everyone got all concerned about supply chain and inflation,” said BMO Capital Markets analyst Simeon Siegel. “But that literally is the same thing as tight inventory and higher prices.”

“Each of these stock pops represents that recalibration back from concerns around inflation into excitement around low discounting,” Siegel said.

All retailers are navigating an environment where costs of everything from fuel to labor are climbing. 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 rents — rose 6.2% year over year, the most since December 1990.

Some categories have seen a bigger uptick than others, though. Food prices, for example, grew by 0.9% in October — with meat, poultry, fish and eggs collectively increasing 1.7%. Apparel prices remained flat.

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 toward and where shoppers are more willing to shell out a few more bucks.

“We’ve clearly been through these inflationary cycles before, and so we have a lot of experience…