Wal-Mart, TJX Ready for Price Hikes

Dominant mass player and top off-pricer said they’re ready to compete as apparel prices rise — a fair warning to the rest of the apparel world.

Wal-Mart Stores Inc. posted a midsingle-digit decline in apparel sales and The TJX Cos. Inc. missed Wall Street’s profit mark for the first quarter, but both firms said they’re ready to compete as apparel prices rise.

This story first appeared in the May 18, 2011 issue of WWD.  Subscribe Today.

From the dominant mass player and the top off-pricer, that counts as fair warning to the rest of the apparel world. Both companies have the country blanketed with stores and have spent years burnishing their low-price bona fides for just such a moment — when higher cotton and labor costs across the sector meet shoppers who are contending with lofty unemployment, a weak housing market and high food and fuel prices.

“From Brazil to Silicon Valley, I’ve visited more than 75 stores in this quarter,” said Mike Duke, Wal-Mart’s president and chief executive officer. “Everywhere I go, I see customers working hard to make ends meet. Inflation and gas prices are adding to the pressures.”

Wal-Mart plans to help alleviate that pressure with its low-price business model, but has yet to find the right formula for apparel.

First-quarter profits attributable to the Bentonville, Ark.-based company rose 3 percent to $3.4 billion, or 97 cents a diluted share, from $3.3 billion a share, or 87 cents, a year earlier. Adjusted earnings of 98 cents beat analyst expectations by 3 cents a share.

Revenues for the quarter ended April 30 increased 4.4 percent to $104.19 billion from $99.81 billion. Wal-Mart’s stock fell 0.9 percent to $55.54 as the S&P Retail Index rebounded from its 2 percent decline on Monday with a 0.1 percent advance to 536.96.

Comparable-store sales fell 1.1 percent at Wal-Mart’s U.S. discount division as traffic to the stores slowed and apparel posted a midsingle-digit decline, with the greatest weakness in children’s, women’s and shoes. Plus-size women’s apparel comped up as the discounter expanded its assortment in the area, part of a broader effort to reverse an earlier streamlining that turned off shoppers. “We’re investing in prices,” said Bill Simon, president and ceo of the U.S. discount division, indicating the retailer will pay up to offset higher supply costs. “We recognize that customers are seeing higher prices across the industry for cotton-related apparel.”

Up against a strong quarter last year, off-pricer TJX’s net income fell 19.8 percent to $266 million, or 67 cents a diluted share, from $331.4 million, or 80 cents, a year earlier. Adjusting results for costs related to the shuttering of the A.J. Wright division, earnings of 78 cents fell 2 cents shy of analysts’ expectations.

The Framingham, Mass.-based company, which operates TJ Maxx and Marshalls in the U.S., drove sales up 4.1 percent to $5.22 billion from $5.02 billion with a 2 percent comp gain and increased foot traffic to its stores.

“We see the uncertainty in the marketplace about sourcing and pricing as an opportunity for our business,” said Carol Meyrowitz, ceo. “The key for us is relative value. If other retailers pass on cost to consumers and our pricing umbrella rises, this should allow us to drive merchandise margins while maintaining our value gap.”

If other retailers absorb rising costs, Meyrowitz said TJX could adjust its product mix, keeping prices down and sustaining margins.

Shares of TJX closed at $52.06, down 4.1 percent for the day.