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Big Off-Pricers Excel in Quarter

NEW YORK — The two largest off-price chains in the U.S. finished their third quarters with double-digit increases in net income and comparable-store sales.<br><br>While TJX Companies and Ross Stores both had sterling quarters, posting net income...

NEW YORK — The two largest off-price chains in the U.S. finished their third quarters with double-digit increases in net income and comparable-store sales.

While TJX Companies and Ross Stores both had sterling quarters, posting net income increases of 34.6 and 28.7 percent, respectively, Stein Mart cut into its losses during the period.

Losses at Factory 2-U Stores worsened, but to a lesser extent than analysts had expected.

TJX COMPANIES

An unseasonably warm September couldn’t prevent TJX Cos. Inc. from fattening its bottom line by more than a third in the third quarter, but a special charge caused the company to miss estimates by a penny.

For the three months ended Oct. 26, the Framingham, Mass.-based off-price giant reported net income swelled 34.6 percent to $147.4 million, or 28 cents a diluted share. That compares with last year’s quarter when the company recorded profits of $109.5 million, or 27 cents. An aftertax charge of 2 cents, related to the settlement of four California lawsuits, caused TJX to miss the Wall Street consensus estimate of 29 cents.

Sales for the quarter grew 11.1 percent to $3.04 billion from $2.74 billion last year, as comparable-store sales notched up 2 percent.

“Our third quarter has certainly been an interesting one. September is a big month and the weather hurt us, but October’s weather came roaring back and our sales were very strong,” said chief executive officer Ted English on a conference call with analysts. “I can’t emphasize how happy I am that we reacted as quickly as we did. It’s critical to our business to manage our inventories aggressively. We’ve planned November very carefully because of the calendar shift that has eliminated seven shopping days from the holiday shopping season.”

Breaking down sales by division, the Marmaxx group, which is the combined entity of T.J. Maxx and Marshall’s, suffered a 10.6 percent reduction in operating income to $218.4 million from $244.6 million, even as sales gained 5.9 percent to $2.41 billion from $2.27 billion a year ago. Same-store sales increased 1 percent. The loss was attributable to the lawsuits as well as markdown pressures, English noted.

Winners, the company’s Canadian operation, saw operating income spike 55.6 percent to $29.3 million from $18.9 million last year. Sales likewise rallied, growing 16.9 percent to $210.2 million from $179.8 million a year ago.

At T.K. Maxx, the company’s European unit, profits and sales continued to expand at a rapid pace, with operating income increasing more than fivefold, or 468.9 percent, to $12.2 million from $2.1 million a year ago. Sales jumped 46.9 percent to $185.6 million from $126.3 million last year.

Overall, for the first nine months of the year, TJX reported net earnings improved 23.2 percent to $424.1 million, or 78 cents a diluted share. That compares with last year’s profits of $345.1 million, or 62 cents. Sales gained 13 percent to $8.48 billion from $7.5 billion a year ago.

In guidance, English said fourth-quarter earnings per share should be in the range of 30 to 32 cents, with full-year EPS on target at $1.09 to $1.11. Comps should be flat to up 2 percent in the fourth quarter.

In a related matter, Standard & Poor’s raised its long-term and short-term corporate credit ratings on TJX to “A” and “A-1,” respectively, from “A-” and “A-2,” respectively. The outlook is stable. S&P said the upgrade reflects TJX’s consistently good operating performance, its solid position in the retail industry and the expectation that the company will maintain a conservative financial policy as it continues its growth strategy.

ROSS STORES

Increased sales and reduced expenses helped Ross Stores Inc. drive its third-quarter profits up 28.7 percent.

Net income for the period ended Nov. 2 climbed to $45.1 million, or 57 cents a diluted share. This compared with year-ago earnings of $35 million, or 43 cents.

Sales for the three months advanced 17.7 percent to $870.2 million from $739.3 million a year ago. Comparable-store sales grew by 7 percent.

“Our sharper pricing strategy has been an important factor in delivering more competitive values, which helped to drive higher-than-expected sales and lower markdowns as a percent of sales,” said Michael Balmuth, vice chairman and chief executive, in a statement.

Recent merchandising trends continued during the quarter, he said, with home products registering midteen comp gains in the quarter. Sales of women’s apparel were described as “healthy” while junior sportswear had a “robust back-to-school season” characterized by a high single-digit comp gain.

Still, gross margins slid 38 basis points because of slightly lower merchandise margins as well as the de-leveraging effect on occupancy costs, primarily from the start-up of a new distribution center, and despite lower markdowns as a percentage of sales. Selling, general and administrative expenses, though, shrunk by 90 basis points, as a percent of sales.

For the nine months, profits pushed ahead 35.6 percent to $142.4 million, or $1.78 a diluted share. This compared with year-ago earnings of $105.1 million, or $1.29.

Sales increased 20 percent to $2.57 billion from $2.14 billion a year ago. Comps rose 9 percent.

The Newark, Calif.-based off-price retailer ended the quarter with 510 stores.

STEIN MART

Higher sales coupled with better gross margins allowed Stein Mart Inc. to narrow its loss by almost $2 million in the third quarter.

For the three months ended Nov. 2, the Jacksonville, Fla.-based retailer suffered a net loss of $3.8 million, or 9 cents a diluted share, beating Wall Street’s expectations by 1 cent. That compares favorably with the prior-year quarter when the firm took a loss of $5.8 million, or 14 cents.

Sales for the period rose 9.4 percent, to $332.8 million from $304.4 million a year ago, and same-store sales followed suit with 2.2 percent growth.

“Most of our third-quarter financial progress came from more disciplined inventory management, which led to better gross margins,” said chief executive officer Jack Williams in a statement. “For the holidays, we have planned conservatively, with the goal of showcasing our strong seasonal merchandise assortment and value proposition, while closely managing inventory to improve profitability.”

Accruing to the improved bottom line was a 105-basis-point improvement in gross margin to 22.1 percent of sales from 21.1 percent a year ago.

Five new stores opened during the quarter, for a total of 16 new doors opened so far this year. By yearend, Stein Mart will have added a net of 12 new stores with approximately 25 stores slated to open next year.

Overall, for the first nine months of the year, the firm’s net earnings shot up 62.2 percent to $10.3 million, or 25 cents a diluted share, versus last year when the company logged profits of $6.4 million, or 15 cents.

Sales for the period advanced 9.6 percent to $1 billion from $912.9 million a year ago. Same-store sales ticked up 0.3 percent.

Looking forward, Stein Mart said it expects fourth-quarter comparable-store sales growth of approximately 2 percent, which would result in fourth-quarter earnings per share of 30 to 35 cents. The full-year EPS is forecast at 55 to 60 cents.

FACTORY 2-U STORES

Sagging sales coupled with flat year-over-year costs pushed Factory 2-U Stores Inc. deeper into the red in the third quarter, but the company did manage to beat analysts’ expectations.

For the three months ended Nov. 2, the San Diego–based off-price retailer suffered a net loss of $3.5 million, or 27 cents a diluted share. That compares with last year’s loss of $324,000, or 3 cents. The loss was 3 cents a share milder than Wall Street had expected.

Sales for the period declined 7.6 percent to $134.5 million from $145.6 million a year ago, as same-store sales slipped 5.6 percent.

Lower sales, combined with flat selling, general and administrative costs of $49.1 million, led to an operating loss of $4.8 million.

William Fields, the former head of Wal-Mart’s discount store division who joined FTU as chief executive officer on Nov. 7, told analysts on a conference call that among the reasons he signed on with the San Diego–based off-price chain was that “the extreme value retailer is the most dynamic, fastest-growing sector in retail and one that is still wide open. I think Factory 2-U used to do that really well. Two is our ethnic mix. There are a number of stores operating in Hispanic areas and as you know, 50 percent of the growth in retailing is going to come from Hispanic customers.”

He also cited opportunities to improve merchandising and expense structure among his reasons for taking the post.

Overall, for the first nine months of the year, the firm reported a net loss of $12.5 million, or 97 cents. That compares with the prior-year period when Factory 2-U lost $2 million, or 15 cents. In the current year, the company incurred a pretax charge of $2.1 million, or 10 cents, related to the settlement of a lawsuit that alleged the company violated the California Labor Code and Internal Wage Commission Orders. Excluding that charge, the company would have reported a net loss of $11.2 million, or 87 cents, compared with last year’s loss of $1 million, or 8 cents. Last year the company recorded a pretax special charge of $1.6 million, or 7 cents, for the retirement and replacement of its general merchandise manager. Excluding that item, the company’s year-ago loss was $1 million, or 8 cents.

Sales for the period declined 7.6 percent to $379.5 million from $410.6 million, as same-store sales were off 8.5 percent.