Amid growing optimism that the holiday season will be cheerier than a year ago, two major retailers, J.C. Penney Co. and May Department Stores Co., reported third-quarter profit that beat Wall Street projections.
Merrill Lynch projected a rosier view of the shopping period before Christmas, upgrading nine major retail companies Tuesday, including department stores and mall-based apparel chains, to a "buy" rating, citing potential earnings surprises and improving sales.
"A good Christmas is locked in stone," said Daniel Barry, managing director of Merrill Lynch, noting improved selling in apparel. "We are going to have the second-best holiday season since 1999."
Penney said Tuesday that its net income fell 35% in the August-October period, dragged down by disappointing results from its Eckerd drugstore division, though its department store unit saw improvement.
The Plano, Texas-based retailer earned $80 million, or 27 cents a share, in the quarter ended Oct. 25, down from $123 million, or 42 cents, a year ago. The results matched Penney's projections last month and beat the consensus forecast of 25 cents a share by analysts surveyed by Thomson First Call.
The results were helped by earnings from businesses that Penney no longer operates. Without those, last year's third-quarter profit would have been only 30 cents a share.
Revenue rose 1.4% to $7.99 billion, slightly below analysts' forecast of $8.08 billion but above last year's $7.87 billion. Same-store sales (sales at stores open at least a year) rose 1.7% at department stores but fell 1% at Eckerd drug stores. Same-store sales are considered the best indicator of a retailer's health.
Penney's stock rose 37 cents to $23.65 on the New York Stock Exchange.
The company has said it was reviewing whether to sell Eckerd, which is struggling to meet competition from other drugstore chains. A decision is expected by the end of the year, Chairman and Chief Executive Allen Questrom reaffirmed Tuesday.
Questrom said Penney expected continued weak sales and profit trends at Eckerd but a better holiday season than last year in its department stores because of "favorable trends in the consumer environment."
The result, he said, would be fourth-quarter earnings of about 80 cents a share -- in line with forecasts -- and full-year profit of $1.25 a share.
May's earnings nearly tripled over the same period last year, bolstered by cost savings from its divestiture of 34 underperforming stores.
The St. Louis-based operator of such chains as Robinsons-May and David's Bridal earned $47 million, or 15 cents a share, in the period ended Nov. 1, up from $16 million, or 5 cents, a year ago. Revenue was flat at $2.98 billion.
Excluding a charge, May said, it earned $51 million, or 16 cents a share, better than Wall Street's expectations of 11 cents.
May shares rose 18 cents to $29.58 on the NYSE.
Also reporting Tuesday was Farmington, Mass.-based TJX Cos., operator of TJ Maxx stores, which said net income increased to $182.8 million, or 36 cents a share, from $147.4 million, or 28 cents. Sales rose 11% to $3.39 billion. Profit matched estimates. TJX shares fell 34 cents to $22.94 on the NYSE.