By  on May 17, 1994

NEW YORK -- Wal-Mart Stores Corp. and Kmart Corp., the two largest general merchandise retailers in the country, had disappointing first-quarter results -- and according to analysts, performance in apparel was soft at both companies.

Profits at Kmart Corp. slumped 69 percent, reflecting continued weakness at its U.S. general merchandise division. While Wal-Mart profits were up 10.6 percent in the quarter, the figures were below Wall Street estimates.

On the New York Stock Exchange Monday, Wal-Mart stock slipped 1 1/4 to 22 3/4, hitting a new low, and Kmart stock was unchanged at 15 1/4.

In the quarter ended April 27, Kmart's earnings plummeted to $18 million, or 4 cents a share, from $58 million, or 12 cents. A year ago, a $10 million charge for early payment of debt and a $32 million accounting charge reduced net income to $23 million, or 5 cents a share.

Sales were up 6.2 percent, to $7.8 million from $7.4 million, reflecting strength in the specialty retail units. Total Kmart operating income dropped 26 percent, to $145 million from $196 million. Edward Johnson of Johnson Redbook Service said Kmart's apparel was weaker than it had hoped. For the year, Johnson projects earnings per share of $1.60, against $1.70 last year, but cautioned that his projection might be optimistic. "Kmart is groping right now for a turnaround," said Rick Nelson, investment research analyst with Duff & Phelps in Chicago. "Sales have been soft in, department stores are bringing more value to their fashion assortments, taking some sales away from the discounters."

Linda Morris, analyst for PNC Bank in Philadelphia, said apparel has been soft across the board, noting Wal-Mart's apparel performance was plagued by markdowns.

At Wal-Mart, earnings in the quarter ended April 30 rose to $498.5 million, or 22 cents a share, from $450.7 million, or 20 cents, a year earlier. Sales jumped 27.1 percent, to $17.7 billion from $13.9 billion, with total comparable-store sales up 10.6 percent. Wal-Mart same-store sales were up 14.6 percent, while Sam's Clubs comparable-store sales declined 1.7 percent.

Kimberly Walin, a retail analyst at Lehman Bros., said Wal-Mart's overall profitability is pretty solid, with operating earnings up 18 percent, but noted interest costs were up $56 million related to the acquisition of 122 Woolco stores in Canada.She said operating profit margins declined to 4.39 percent from 4.7 percent, and these factors made the market nervous.

"Apparel has experienced a little bit of a lag," she continued, noting women's foundations were the only strong category in a generally weak apparel picture.

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