Nation's largest chains post higher profits Strong sales expected to continue through fall into holidays

Retail

August 19, 1998|By BLOOMBERG NEWS

NEW YORK -- Several of the nation's largest retailers -- Home Depot Inc., Dayton Hudson Corp. and Limited Inc. -- reported higher second-quarter earnings yesterday as the strong economy boosted sales of everything from barbecue grills to designer fashions.

J. C. Penney Co., the fourth-largest U.S. retailer, didn't fare as well. Its profit fell 7.6 percent after sluggish sales prompted it to mark down prices at its department stores.

Retailers of all kinds are reaping the benefits of the robust U.S. economy, which is giving shoppers the cash and the confidence to splurge on themselves and their homes. That's likely to continue into the key back-to-school and holiday seasons as unemployment remains low and wages rise, analysts said.

"Retailers are showing in-line or better-than-expected results for the initial back-to-school season," said Steve Paspal, a senior research analyst at Sovereign Asset Management, a unit of John Hancock Funds. "The macroeconomic backdrop is still very favorable."

The chains have also focused on cutting costs in recent years by streamlining the way they distribute and track inventory. That has helped widen the industry's gross margin to an estimated 24.5 percent of sales this year from 22.3 percent in 1995, according to Value Line.

This quarter, 61 percent of retailers have reported better-than-expected earnings -- led by Wal-Mart Stores Inc., Federated Department Stores Inc., Gap Inc. and Lowe's Cos. -- and 29 percent matched forecasts, said First Call Corp.

Home Depot, the top seller of home-improvement supplies, said its net income rose 30 percent to $467 million, or 31 cents a diluted share, from $358 million, or 24 cents, in the same period a year ago.

That beat by a penny the average estimate of analysts polled by First Call for the quarter that ended Aug. 2.

Home Depot's revenue rose 24 percent, to $8.14 billion from $6.55 billion.

The robust market for new and older homes is filling Home Depot's stores. The strong sales and lower costs lifted its pretax profit to 9.45 percent of sales, the highest level for the second quarter in 16 years.

"That's just unbelievable," said Alan Rifkin, a Piper Jaffray Inc. analyst. "It's increasingly difficult to drive your earnings at the same rate when you're a $30 billion company as when you're a $10 billion company."

Dayton Hudson, the No. 5 U.S. retailer, said its net income rose 26 percent to $172 million, or 36 cents a diluted share, from $137 million, or 28 cents, before a charge and a gain a year earlier.

The results beat by a penny the average estimate of analysts polled by First Call for the quarter that ended Aug. 1.

Higher sales at the Target discount chain, which generates as much as 75 percent of the company's revenue, and at the Dayton's, Hudson's and Marshall Field's department stores offset lower profit at the Mervyn's mid-price department-store chain.

J. C. Penney's profit before charges dropped to $97 million, or 35 cents a diluted share, from $105 million, or 38 cents, for the same period a year ago. The results matched the average estimate of analysts polled by First Call for the quarter ended Aug. 1.

The retailer warned in July that earnings would be less than expected because shoppers had cleaned out its already lean stock of spring and summer goods by April and May.

That prompted it to discount other items such as home TTC furnishings to attract customers, leading to lower earnings in a quarter when many other retailers reported strong gains.

Limited, the largest U.S. chain specializing in clothing, said its profit before a gain rose 27 percent to $31.8 million, or 13 cents a diluted share, from $25.1 million, or 11 cents, a year earlier. The results matched forecasts.

Pub Date: 8/19/98

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