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Retail chains hit 3Q
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November 13, 2001: 3:46 p.m. ET
Wal-Mart, Home Depot, J.C. Penney sales, profits up in slow economy.
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NEW YORK (CNN/Money) - Three of the nation's largest retailers, Wal-Mart Stores Inc., J.C. Penney & Co., and Home Depot Inc., bucked a slowing U.S. economy to post improved third-quarter earnings Tuesday that matched Wall Street forecasts.
The results for these three chains in particular reflect consumers' shifting habits as the economy continues a slowdown begun in January and made worse by the Sept. 11 terrorist attacks on the World Trade Center and the Pentagon.
A weekly retail industry sales report out Tuesday revealed that U.S. chain-store sales increased by 0.6 percent for the week ended Nov. 10 over the prior week, though soft Veteran's Day sales dampened results for most.
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Consumers are looking for bargains amidst the slowing economy and terrorism worries (CNN/file) | |
Mall traffic declined by 7.3 percent, the twenty-eighth consecutive weekly decline in traffic, according to the latest report from Bank of Tokyo-Mitsubishi and UBS Warburg.
Chain-store sales for November, which marks the start of the crucial holiday season, are expected to increase by 1.5 percent from last year. However, the report notes that retailers face one less selling week this year because of a calendar shift, which would account for some soft sales growth. Excluding the calendar shift, November sales are forecast to grow 3.5 percent from the previous year.
Discount chains, led by Wal-Mart, have shown some of the strongest gains as Americans scale back on big-ticket purchases and stick with daily staples such as food, health and beauty aids and other moderately-priced items amid continued news of job cuts, fears of another terrorist attack and a volatile stock market.
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Robert Nardelli, CEO and president of Home Depot talks with CNNfn's Rhonda Schaffler about meeting 3Q estimates.
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Though traditional department stores have been struggling all year as consumers switch over to discount chains, J.C. Penney, a more moderately-priced department store, has logged gains as it benefits from improvements within its stores and more efficient operations.
Though Home Depot saw most of its gains come through strict cost-control in the quarter, it has managed to post sales gains as Americans look to their homes during uncertain times. While big-ticket remodeling and power tool purchases may not be as robust, paint and other items helped to maintain the company's revenue.
For the quarter ended Oct. 31, Wal-Mart (WMT: down $0.65 to $54.93, Research, Estimates) of Bentonville, Ark., reported earnings of $1.5 billion, or 33 cents a share, up from earnings of about $1.4 billion, or 31 cents, a year earlier. Analysts surveyed by earnings tracker First Call had predicted 33 cents.
Revenue at Wal-Mart, the world's largest retailer, grew 15.5 percent to $52.7 billion from $45.8 billion, topping analysts' estimates for sales of $52.2 billion, according to First Call. Executives with the discount chain say they are seeing improved demand partly because of the slowing economy and that they are comfortable with fourth-quarter EPS forecasts of 48 cents.
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"As the economy has slowed customers have become more concerned about price," said Lee Scott, Wal-Mart's CEO, in a Tuesday morning conference call. He said that he believes sales are also helped by dropping gasoline prices, which are putting more money in consumers' pockets, and that despite the overall economic outlook, the company is well-positioned for a strong Christmas shopping season.
"Clearly they're the leading broad-line retailer right now. They're going to exit this environment with tremendous market share gain, and hopefully they'll be able to translate sales momentum into robust earnings momentum," said Bill Dreher, a retail analyst at Robertson Stephens.
Atlanta-based home improvement and hardware retailer Home Depot Inc. (HD: up $2.88 to $44.00, Research, Estimates) said it earned $778 million, or 33 cents a share, up from $650 million, or 28 cents, a year earlier, which also matched First Call's forecasts.
Home Depot saw sales rise 15 percent to $13.3 billion, but unlike Wal-Mart it fell just short of First Call's revenue forecast of $13.4 billion.
The company also said it expects to meet Wall Street's fourth-quarter earnings forecasts of 28 cents a share, compared with 20 cents a year earlier, according to First Call.
For the fiscal year, Home Depot said it expects earnings of $1.27 a share, a penny ahead of Wall Street's consensus, according to First Call.
The company cited strong cost-cutting measures, along with efficiency programs designed to streamline distribution costs and in-store safety, as primary drivers of its third-quarter growth.
"They've really reeled in their expense structure. You're going to see more of that going forward," said David Ricci, a retail analyst at William Blair & Co.
Ricci said investors can expect the company to scale back on store expansion as it focuses on improving its operating margins through such programs as its "Pro" initiative aimed at professional contractors.
Carol Tome, Home Depot's chief financial officer, said the company's sales at stores open at least a year, a key gauge known as same-store, or comparable-store, sales, were flat compared with a year ago. Sales of big-ticket items such as kitchen cabinets and power tools were down from the year-earlier quarter, but that was partially offset by sales of paint, lumber, and energy-efficient items, she said.
"Looking at the economy, we continue to be cautious in our expectations for a recovery," Tome told analysts during a conference call Tuesday. "We expect comp-store sales to be positive in low single-digits in the fourth quarter."
J.C. Penney (JCP: up $1.38 to $25.13, Research, Estimates) posted a third-quarter profit of $48 million, or 13 cents a share, excluding a restructuring charge. That's in line with the First Call forecast and an improvement from its loss of 24 cents on a comparable basis a year earlier. Including special items, the company posted net income of $31 million, or 9 cents a share, compared with a net loss of $30 million, or 30 cents, a year earlier.
J.C. Penney's revenue increased 2.5 percent to $7.7 billion, up from $7.5 billion a year earlier, as gains in sales at its Eckerd drugstore chain overcame a 1 percent drop in revenue at its department store unit.
CEO Allen Questrom said he believes Penney's merchandise mix and marketing programs positions it well for the holiday season. He predicted full-year earnings of between 30 cents and 35 cents a share, within the range of Wall Street's consensus for 33 cents a share profit, according to First Call. 
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