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Not every retailer is feeling the economy’s pain.
Results from a quartet of major retailers Thursday showed that there are clear winners, either because of low prices — Wal-Mart Stores Inc. — or fashion merchandise delivered in exciting environments — Urban Outfitters Inc. Meanwhile, Kohl’s Corp. and Nordstrom Inc. both suffered the pinch of the downturn, not only reporting lower earnings, but also cutting their outlooks.
The numbers arrived as a late-day flourish allowed both the Dow Jones Industrial Average and the Standard & Poor’s Retail Index to end three-day slides and post vigorous increases. In fact, the S&P Retail Index registered the third-biggest point gain since its 2002 recalculation, rising 19.92 points, or 8.1 percent, to 265.12.
The “save money, live better” theme worked like a charm for Wal-Mart Stores Inc. in the third quarter.
By fighting to be the least-expensive purchasing option, or at least to be perceived that way by consumers, and strengthening its position in basic apparel, Wal-Mart drove third-quarter net income up 9.8 percent to $3.14 billion, or 80 cents a diluted share, from $2.86 billion, or 70 cents, a year ago. Sales for the three months ended Oct. 31 increased 7.5 percent to $97.63 billion from $90.83 billion, and total U.S. comparable-store sales rose 3.3 percent.
Joining Wal-Mart in reporting third-quarter results Thursday were Kohl’s and Nordstrom, both of which registered lower earnings and issued reduced profit guidance for yearend. Wal-Mart wasn’t totally impervious to retailing’s difficulties, either, as it modestly lowered its profit guidance from continuing operations for the year to $3.42 to $3.46 a share from the previously projected range of $3.43 to $3.50, implying fourth-quarter earnings per share of 99 cents to $1.03. The sole specialty store reporting, Urban Outfitters, logged sharply higher earnings and sales, as expected.
While Urban Outfitters made its figures on style and flash, Wal-Mart made no apologies for revving the price engine at every opportunity in the most challenging retail environment in more than a generation.
“We have strengthened our price leadership position and it is more established than ever with our customers,” H. Lee Scott, president and chief executive officer of Wal-Mart Stores Inc., said. “This will continue to drive our success.”
The company said comp sales in its apparel business have outperformed the market overall.
At the firm’s U.S. Wal-Mart stores, operating income increased 7.3 percent to $4.29 billion on a 6.1 percent rise in sales to $61.16 million. Sam’s Club’s operating earnings inched up 1.7 percent to $365 million on a 7.4 percent rise in sales to $11.62 billion. And the international segment’s operating profits jumped 10.6 percent to $1.18 billion on an 11.2 percent boost in sales to $24.86 billion.
The third quarter showed how Wal-Mart could use its growing clout in the entertainment world to drive apparel sales. An exclusive deal to sell AC/DC’s new album, “Black Ice,” and an accompanying video game helped sales in the young men’s department, which offered related T-shirts and a variety of other items.
Wal-Mart’s sharp pricing in apparel has made it an even tougher competitor as consumers curtail spending.
“Apparel continues to work for us, especially in basics,” Eduardo Castro-Wright, president and ceo of Wal-Mart’s U.S. division, said. “On a comp basis, our apparel business outperformed the market. We started the quarter with strong back-to-school sales led by denim and casual apparel. That momentum continued through Halloween.”
And Wal-Mart plans to keep beating the pricing drum. “Price leads all of our marketing programs,” Castro-Wright, said. “We will continue to remind customers that the savings add up when you shop at Wal-Mart. This message will continue to be very important during the holidays.”
Last week, the retailer also launched what it dubbed “Operation Main Street,” a seven-week program designed to roll back prices throughout its stores an additional $200 million.
Wal-Mart, which last year rejiggered its apparel department to refocus on a more straightforward value footing, seems to have been fortunate in its timing, Craig Johnson, president of Customer Growth Partners, said.
“It’s still a work in progress, but I do think that the combination of the merchandise improvement on one hand and the driving economic factors on the other is conspiring to allow them to outperform, which basically means they are taking share,” Johnson said.
For the first nine months of the year, Wal-Mart’s income advanced 11.3 percent to $9.61 billion, or $2.43 a diluted share, from $8.64 billion, or $2.11, a year earlier. Sales increased 9.4 percent to $293.25 billion from $268.1 billion, and U.S. comp sales rose 3.9 percent.
Although equally eager to pick up market share from competitors, Kohl’s Corp. reported lower third-quarter profits and reduced projections for the rest of the year.
Net income fell 17.4 percent to $160.2 million, or 52 cents a diluted share, from $194 million, or 61 cents, a year ago. Sales for the three months ended Nov. 1 dipped 0.6 percent to $3.8 billion from $3.83 billion as comparable-store sales fell 6.7 percent.
“We remain conservative in our sales expectations for the fourth quarter and will manage our business accordingly,” Kohl’s president Kevin Mansell said.
The company is now looking for fourth-quarter earnings of 90 cents to $1.05 a diluted share, down from the $1.26 to $1.34 previously expected. Kohl’s is assuming comp sales will fall 8 to 12 percent.
“We expect the holiday season to be the most challenging in years and will be very competitive in order to gain market share,” Mansell said.
During the first nine months of the year, the retailer’s profits fell 18.3 percent to $549.1 million, or $1.79 a diluted share, from $672.2 million, or $2.09, a year earlier. Sales inched up 1.5 percent to $11.15 billion from $10.99 billion as comps fell 6 percent.
Nordstrom Inc. reported significant reductions in third-quarter earnings and sales, as well as in earnings projections for the year and growth plans for 2009.
The company said income for the three months ended Nov. 1 fell 57.2 percent to $71 million, or 33 cents a diluted share, from $166 million, or 68 cents, in the year-ago quarter. The 2007 period included a $20.9 million gain from the sale of the Façonnable business. Sales declined 8.4 percent to $1.80 billion from $1.97 billion, while comparable-store sales in the period decreased 11.1 percent.
The company reduced full-year EPS guidance for the second time, trimming expectations to a range of $1.87 to $1.97 on an anticipated decline in same-store sales of 9 to 10 percent. Earlier, EPS had been slated to hit $2.65 to $2.80 and, after a first reduction, $2.55 to $2.65. Fourth-quarter comparable-store sales are expected to drop 13 to 16 percent, and EPS for the period, to land between 35 and 45 cents.
The Seattle-based firm, which operates 109 full-line stores, 56 Nordstrom Racks, two Jeffrey boutiques and two clearance units, said it will slash capital expenditures to $350 million next year from about $510 million this year. It expects to open three full-line stores and relocate another next year, “given current economic conditions and delays in real estate development.”
While comps at full-line stores fell 15.6 percent, they rose 3.6 percent at Nordstrom Rack. Sales at the direct segment, nordstrom.com, gained 8.5 percent. The company said that sales in “all of our businesses were significantly impacted after the financial markets began to experience severe stress in mid-September.”
For the nine months, income fell by 33.8 percent to $333 million, or $1.52 a diluted share, from $503 million, or $1.98, last year. Sales were down by 5.4 percent to $5.97 billion from $6.31 billion.
The retailer suspended its share repurchase program in September, and said it may resume purchases in the future when economic conditions improve.
Urban Outfitters Inc. posted a 30.6 percent jump in third-quarter profits, helped by tight inventory controls and strong sales from the trendy apparel retailer’s namesake.
For the quarter ended Oct. 31, the Philadelphia-based company reported net income of $59.3 million, or 35 cents a share, versus $45.4 million, or 27 cents a share, for the year-ago period. Net sales rose 26 percent to $478 million from $379.3 million. Analysts were looking for EPS of 35 cents on sales of $478.9 million, according to Yahoo Finance.
By brand, quarterly sales for Urban Outfitters soared 29.5 percent to $208.3 million, from $160.9 million, while sales at Anthropologie grew 13.5 percent to $158.9 million from $140 million. Free People’s revenue increased 98 percent, to $9.7 million from $4.9 million, and Terrain, the company’s recent garden concept, brought in sales of $1.3 million. Direct-to-consumer sales bounded 40.9 percent to $65.9 million from $46.8 million.
Same-store sales rose 10 percent overall, with Urban Outfitters, Anthropologie and Free People up 17, 2 and 4 percent, respectively.
Content with the retailer’s inventory position, ceo Glen Senk said that, at the end of the quarter, inventories increased by $39.6 million, or 19 percent, driven by inventory to stock new stores, while total comparable inventory grew only 2 percent.
Even though the consumer is “fearful, and many retailers are struggling,” the company said, it will continue to “take managed risks” that “excite the customer.”
In an interview with WWD, Senk said that, despite sluggish mall traffic, his company continues to “do quite well in malls.” The retailer saw revenue gains in all store locations, he said, with metropolitan, or “downtown,” locations leading the group, followed by malls.
“It starts with the site selection,” Senk said. “It’s a holistic approach. We never use price to drive our business.”
Considering sales and earnings gains, UBS Investment Research retail analyst Roxanne Meyer said: “While Urban is not immune to the downturn, we believe a combination of the right product and multiple sales and margin drivers should ultimately reward shareholders.”
For the nine months, profits jumped 49 percent to $158.8 million, or 93 cents a diluted share, compared with $106.6 million, or 63 cents a share. Sales were up 27.3 percent to $1.33 billion, from $1.04 billion. The retailer said that, during the nine months, it has opened 41 stores: 18 Urban Outfitters stores, 10 Anthropologie, 12 Free People and one Terrain unit.