Discounters beat profit forecasts

Double-digit increases at Wal-Mart, Target signal healthy holiday ahead for retailers

November 15, 2006|By Bloomberg News

NEW YORK -- Wal-Mart Stores Inc., the world's largest retailer, and Target Corp. reported third-quarter profits yesterday that exceeded analysts' estimates on sales of food and toys, signaling that consumers might favor discount chains and department stores this holiday season.

Net income at Wal-Mart rose 11 percent to $2.65 billion, or 63 cents a share. Target, the second-largest U.S. discount chain, said profit climbed 16 percent to $506 million, or 59 cents a share.

Retailers rely on discounts to lure shoppers for the holidays, which account for a third of the industry's profits. Wal-Mart cut prices on flat-panel TVs by 28 percent and offered $4 prescriptions on generic drugs. Target introduced toasters designed by Michael Graves and dresses by Behnaz Sarafpour.

"It looks like the holiday season is set up to be a pretty decent one," said Walter Todd, who helps manage $850 million at Greenwood Capital Associates LLC in Greenwood, S.C. "The consumer remains resilient despite the forecast, including ours, that they would slow down." Greenwood used to own Wal-Mart shares.

Sales at Wal-Mart rose 12 percent to $83.5 billion, bolstered by international acquisitions. Target increased revenue 11 percent to $13.6 billion.

Wal-Mart said its third-quarter sales at U.S. stores open at least a year increased 1.5 percent, the smallest increase since early 2005. Fourth-quarter comparable sales will rise between 1 percent and 2 percent, Chief Financial Officer Thomas Schoewe said on a prerecorded earnings call yesterday.

The company lowered its full-year forecast to as much as $2.89 a share from a high of $2.95.

At Home Depot Inc., the world's biggest home-improvement retailer, net income dropped 3.1 percent to $1.49 billion, or 73 cents a share. It was the first drop in three years as home sales declined.

Sales at Target stores open at least a year rose 4.6 percent in the three months through Oct. 28, the 12th time in 15 quarters that Target's growth outpaced Wal-Mart's.

Target added groceries to more stores and introduced organic foods in the quarter after Wal-Mart expanded its line of similar items. Chief Executive Officer Robert Ulrich also lured customers with clothes and fashionable furniture.

Meanwhile, luxury retailer Saks Inc. reported a hefty increase in its third-quarter profit as the company benefited from improved fashions and its focus on streamlining operations.

For the period that ended Oct. 28, Saks posted net income of $6.2 million, or 5 cents per share, compared with $225,000, or break-even on a per-share basis, in the year-ago period. Unusual items reduced earnings by 2 cents per share in the latest quarter.

Saks posted sales of $697 million in the quarter, up from $645.15 million in the year-ago period, missing analysts' estimates of $806 million in sales. Nevertheless, the company had an 8.8 percent gain in sales at stores open at least a year, a key retail measure known as same-store sales.

Teen stalwarts Abercrombie & Fitch Co. and American Eagle Outfitters Inc. reported double-digit profit gains in the third quarter that beat Wall Street's estimates. Abercrombie & Fitch enjoyed a 43 percent profit increase, helped by strong sales at its Hollister line of stores that cater to teens with surfer-inspired looks. American Eagle posted a 37 percent jump in profit for its latest quarter as trendy new clothing lines boosted sales, and it announced a 3-for-2 stock split.

The Associated Press and Bloomberg News contributed to this article.

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