||Retailers Generate Profits Despite Slow Sales
Even as worries grow about another economic downturn, major retail companies continue to report strong earnings, thanks to tough lessons from the recession.
Some retailers turning a solid profit are doing so despite sluggish sales, including Wal-Mart, which said on Tuesday that same-store sales in the United States had declined for the ninth consecutive quarter. Still, the company, the country's largest retail chain, reported that net income had increased 5.7 percent because of what it called "strong expense management," among other things.
Retail analysts said results reported over the last week by a broad cross section of retailers -- including Macy's, Saks Fifth Avenue and Kohl's -- suggested that whatever happened with consumer spending, the retail sector was better equipped to cope than it was when the recession hit.
Among the lessons learned, said Bradley Thomas, a retail analyst with KeyBanc Capital Markets, are keeping inventories lean, using marketing dollars strategically and quickly marking down slow-moving items so they do not have to be priced later at rock-bottom clearance prices.
"Companies are doing more with less," Mr. Thomas said. "The downside risk is not as great as it was in 2008."
The slate of results reported on Tuesday showed varied sales numbers. Saks Fifth Avenue had a large same-store sales increase of 15.5 percent for the quarter. Home Depot's sales were strong; the discount retailer T. J. Maxx had a good sales quarter; and Wal-Mart said its same-store sales in the United States had declined by 0.9 percent.
All four retailers posted profits better than Wall Street had expected, and all except Saks raised their full-year profit projections. In explaining the results, retail executives said that although the economy was volatile, they had been through ups and downs like this before.
"If we do experience a prolonged downturn, we'll approach it in the same way we did in the past, focusing on controlling what we can control: expenses, capital spending and inventory," Stephen I. Sadove, chairman and chief executive of Saks, told investors Tuesday. He said Saks was better positioned than in 2008 because of "carefully controlled" inventory, a stronger balance sheet, decreased capital spending and the closure of seven full-line stores in the last year and a half.
Retailers of all stripes said they had not yet seen outsize effects among shoppers from the recent stock market swings, but the higher-end retailers expressed greater confidence about sales in the future than did the lower-end ones.
"Our August comp sales are in line with our comp sales forecasts for the fall season," Mr. Sadove said. He added that full-price selling was now more prevalent than it had been before the recession, and that he expected that trend to continue.
Mr. Sadove's comments echoed those last week from executives at Nordstrom and Macy's, which owns the higher-end Bloomingdale's. Like Saks, both companies posted strong sales and higher-than-expected profits. Both also raised their profit outlook for the year.
At Nordstrom, full-price items are also selling well, even as prices climb, executives said. And at Macy's, nonsale items were also big sellers, and "our outlook for the remainder of the year reflects the optimism we feel about the direction of the business, as well as realism about the macroeconomic environment," Karen M. Hoguet, the chief financial officer, said. Macy's said it had its best second quarter in more than a decade.
At the lower end of the retail world, the mood has been more subdued. At Wal-Mart, executives said Tuesday that shoppers were under as much economic pressure as ever, and that the job market was now worrying them even more than high gas and food prices.
"They're trading down to stretch their budgets, buying a lower-priced brand of detergent, moving from branded canned goods to private label and purchasing half gallons of milk instead of gallons," Michael T. Duke, the chief executive, said.
Those worries among customers contributed to the continuing slide in same-store sales, but Wal-Mart posted a higher-than-expected profit nonetheless. Net income at the company increased to $3.8 billion, or $1.09 a share, a penny better than analysts had projected. Its revenue rose 5.4 percent to $109.3 billion.
In addition to "strong expense management," Mr. Duke said, Wal-Mart was getting inventory levels under control, while better sales at Sam's Club and Wal-Mart's international division also contributed to the healthier bottom line.
Wal-Mart said its full-year profit should be higher than expected, at $4.41 to $4.51 a share, versus the $4.35 to $4.50 guidance it had previously given. That again seemed to be based on expense controls and growth overseas and at Sam's, not on strong domestic sales.
"Negative headlines don't help consumer sentiment at any level of income, but our customer, also just from a job perspective and a real income perspective, is really stretched," Charles M. Holley Jr., the chief financial officer, said in a call with reporters. "The unemployment is actually a lot higher for people who have less education and had less income to begin with -- it's much more severe as you go down the economic scale."
At Kohl's, which caters to shoppers who are generally better off than those at Wal-Mart, Kevin Mansell, chairman and chief executive, said he was not happy with the sales. Kohl's profits, though, beat expectations. Kohl's same-store sales were lower than the 2 to 4 percent increase the retailer had projected, coming in at 1.9 percent. Yet the retailer nevertheless posted a 17 percent increase in profit, which it attributed to controlling expenses, stocking more profitable private brands, and keeping inventory levels modest.
Dillard's, another midrange chain, said last week that its profit for the quarter more than doubled from a year before, rising to $17.6 million from $6.8 million a year before. Same-store sales rose 6 percent for the quarter. Over the last couple of years, Dillard's has closed stores and reduced its inventory.
J. C. Penney posted a quarterly profit of $14 million, or 7 cents a share, last week, about what analysts expected. Penney noted it was cutting $50 million from expenses.
(Source: The New York Times, 08/17/11)
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