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Retailers lower targets
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August 10, 2000: 11:46 a.m. ET
Lands' End reports surprise 2Q loss while Gap, Kmart hit lowered targets
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NEW YORK (CNNfn) - Sluggish apparel sales prompted profit warnings from two popular retailers for the second half of the year as weak earnings reports flowed from the sector Thursday.
Meanwhile, Kmart Corp., the third-largest U.S. retailer behind Wal-Mart and Sears Roebuck & Co. (S: Research, Estimates), met lowered earnings forecasts for its second quarter, although restructuring charges plunged the company into the red for the period.
Gap Inc. and direct retailer Lands' End Inc. warned of sagging profits in the second half. But Gap at least edged past recently lowered earnings forecasts for the fiscal second quarter. Lands' End posted an unexpected loss for the period, missing analysts' twice-lowered estimates for the quarter ended July 28.
These latest warnings follow a lowered third-quarter guidance from the leading U.S. retailer, Wal-Mart Stores Inc. (WMT: Research, Estimates), which it gave to analysts Wednesday after it reported strong second-quarter results.
Lands' End hit by higher costs, obsolete inventory
Lands' End, which has struggled to move more of its business from catalog to Internet sales, lost $1.9 million, or 6 cents a share, in the period ended July 28. Analysts surveyed by earnings tracker First Call forecast the company would earn 7 cents a share in the period. A year earlier, earnings were $4.5 million, or 14 cents a diluted share.
 The company blamed increased liquidation sales and the need to increase reserves for obsolete inventory as well as increased expenses, including catalog advertising.
Sales of the Dodgeville, Wis., company edged up to $255.5 million from $254.6 million.
It said that given the results, it now hopes to edge past $1.52 a share it earned a year ago. But even that will be well below analysts' forecasts of $1.72 a share in profits for the current fiscal year. And the company said it couldn't even assure it would meet the lowered goal.
"Obviously, our ability to predict future sales and earnings has not been borne out by experience so far this year," admitted CEO David Dyer. "We need to adopt a wait-and-see approach to the rest of the year. The holiday season is always very important to us but it is really the key to a successful year this time out."
Shares of Lands' End (LE: Research, Estimates) lost 1-7/16 to 29 in trading Thursday.
Gap sees problems in third and fourth quarters
Gap, the San Francisco-based company that operates Gap, Old Navy and Banana Republic stores, saw earnings drop to $183.9 million, or 21 cents a diluted share, from $195.8 million, or 22 cents a share, a year earlier.
 Analysts surveyed by earnings tracker First Call/Thomson Financial lowered their estimates within the last week to 20 cents a share from 23 cents a share after an Aug. 2 warning from the company.
Estimates for the next two periods are likely to fall as the company said third-quarter earnings may drop to or below year-ago results of 35 cents a share, rather than the 41 cents a share forecast for the current period. It also said fourth-quarter forecasts of 57 cents a share are "slightly at risk."
The weak report and warning follow a first quarter in which the company missed forecasts. It said part of the problem in the second quarter was a logistics supply problem that kept some products from reaching its Old Navy stores, as well as the need for more promotions than expected to maintain traffic.
"Second quarter was an extremely tough period for us, as it was for many retailers," Gap President and CEO Millard S. Drexler said. "We're dealing with challenges in an uncertain retail environment. But we feel good about our long-term growth opportunities and the fundamental strength of our brands."
Gap sales rose to $2.9 billion from $2.5 billion, driven by new locations. Sales at stores open at least a year, a closely watched measure known as same-store sales, fell 2 percent in the period.
Shares of Gap (GPS: Research, Estimates) tumbled 4-9/16 to 26-15/16 in trading Thursday.
Kmart meets lowered forecasts
Kmart (KM: Research, Estimates), the third-largest U.S. retailer, reported profits from operations of $23 million, or 5 cents a diluted share, in line with First Call forecasts.
In a meeting with analysts following the earnings report Thursday, Kmart Chairman and Chief Executive Officer Chuck Conaway said a massive restructuring effort announced last month will transform Kmart into a lean and strong competitor.
"We believe that Kmart will become a wholly new company, ready to truly exploit new growth strategies unprecedented in the company's history," Conaway said. "Yes, there's a lot of work to do, and there will be no silver bullet, but it's the opportunity of a lifetime to get it done."
Forecasts for the company were lowered from 16 cents a share after the company issued a warning and announced the reorganization and the closing of 76 under-performing stores July 25. Forecasts had been coming down even before that alert. The company earned $138 million, or 26 cents a share, on the same basis a year earlier.
 Including special charges related to restructuring costs in the current quarter and charges related to bowing out of commercial leases a year ago, Kmart reported a net loss of $448 million, or 93 cents a share, compared with a loss of $92 million, or 19 cents a share, a year earlier.
Kmart sales were just under $9 billion in the quarter, up from $8.8 billion a year earlier. Same-store sales slipped 0.7 percent in the period.
By October, all Kmart stores will have updated scanners, and by August, 2001 all stores will have new registers, Conaway said, and added that the new equipment should help increase customer check-out speed by 20 percent.
Shares of Kmart edged up 1/4 to 7-7/16 in trading Thursday. 
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Lands' End warns on 2Q - July 24, 2000
Lands' End stock tumbles - June 8, 2000
Gap Inc. gives 2Q warning - Aug. 2, 2000
Retailers to revamp stores - Kmart, Circuit City will miss estimates - July 25, 2000
Kmart, Gap, Lands' End post weak 1Q earnings - May 11, 2000
Gap beats 4Q forecasts - Feb. 24, 2000
Clothing retailers beat the street - Nov. 11, 1999
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