Cautious retailers meet expectations
Target’s profit was as good as analysts expected, and Saks lost less money than expected. These days, that’s good news.
Investors have been nervously watching for Target Corp.’s results since last week, when bigger rival Wal-Mart Stores Inc. posted a higher quarterly profit but cut its 2007 earnings forecast because of weak consumer spending.
Target wasn’t totally immune to that weakness.
“As we look to the remainder of the year, we are planning our business more conservatively to reflect this climate,” President Gregg Steinhafel said Tuesday.
Steinhafel said the retailer would carefully manage inventory on discretionary goods such as clothing and seasonal items.
Analyst Todd Slater of Lazard said any downturn in consumer spending would logically hit Wal-Mart harder.
“I think the climate is significantly tougher for the most moderate [income] households, which probably make up a larger percentage of Wal-Mart’s traffic than it does Target’s,” he said. “Target is positioned more favorably than Wal-Mart in the current environment, for sure. But I think Target out-merchandises Wal-Mart, day in and day out.”
For its fiscal second quarter that ended Aug. 4, Minneapolis-based Target earned $686 million, or 80 cents a share, up 12.6% from $609 million, or 70 cents, a year ago. Revenue rose 9.5% to $14.62 billion.
Analysts surveyed by Thomson Financial expected earnings of 80 cents a share on revenue of $14.67 billion.
Target said same-store sales, or sales at stores open at least a year, rose 4.9% for the quarter. The company said it expected same-store sales growth in the mid-single digits for the second half of the year.
Target said its prior estimate of full-year earnings of $3.60 a share was still possible. Analysts expected $3.63 a share.
Upscale department store operator Saks Inc. reported a narrower loss as its same-store sales jumped 13.2% and its margins expanded on reduced markdowns. But its shares fell because it said margins would be flat for the rest of the year.
The Birmingham, Ala.-based company reported a second-quarter loss of $24.6 million, or 17 cents a share, compared with a loss of $51.9 million, or 38 cents, a year earlier. Sales jumped 15% to $694.1 million.
Saks’ loss would have been 14 cents a share if not for one-time charges. On that basis, analysts surveyed by Thomson Financial expected a loss of 15 cents a share on sales of $684.6 million.
“Saks has done a better job focusing on their demographic,” Slater said.
Teen clothing retailer American Eagle Outfitters Inc. beat analyst expectations by a penny a share too. The Warrendale, Pa.-based company’s net income increased to $81.3 million, or 37 cents a share, from $72.1 million, or 31 cents, a year earlier. Sales grew 17% to $703.2 million.
Target shares rose $1.01, or 1.7%, to $60.10 on Tuesday. Saks shares fell $1.11, or 6%, to $16.83. Shares of American Eagle fell 20 cents to $22.81.
Staples Inc. posted an 11% rise in fiscal second-quarter profit and lowered its annual sales forecast on a drop in revenue from North American stores.
Net income in the period that ended Aug. 4 rose to $178.8 million, or 25 cents a share, from $161.2 million, or 22 cents, a year earlier.
Sales at the Framingham, Mass.-based office supply retailer’s U.S. and Canadian stores open at least a year fell 2%, the first drop since 2002. Revenue climbed 11% to $4.29 billion. Staples expects “low double-digit” revenue growth on a percentage basis for the year through Feb. 2.
