U.S. retailers fought a pitched battle for sales and traffic in the third quarter, and the fight for the consumer’s dollar is only getting more heated as the push for holiday sales is already reaching a frenzy.

This story first appeared in the November 14, 2014 issue of WWD. Subscribe Today.

Wal-Mart Stores Inc., Nordstrom Inc. and Dillard’s Inc. reported stronger third-quarter profits Thursday — with Kohl’s Corp. coming in below year-ago levels — but all were decidedly cautious about the fourth quarter, which they expect to be savagely promotional. Retailers will need a combination of hard work, creativity and just plain luck from sources like the weather and oil markets to get consumers into their stores.

Almost every retailer reporting third-quarter results this week has revised down fourth-quarter guidance, and both Wal-Mart and Nordstrom joined the club on Thursday. While Wal-Mart reported the first positive comparable-store sales in its U.S. stores in seven quarters, the world’s largest retailer projected comps that would be flat to up 1 percent in the holiday quarter.

Kohl’s, which fell short of Wall Street’s expectations with a 19.8 percent decline in third-quarter profits, projected a 2 to 3 percent increase in fourth-quarter comps, a claim Wells Fargo analyst Paul Lejuez considered “overly optimistic.”

“November seems to be off to a good start, but these few days of November are pretty meaningless to Q4 overall,” he said. “We expected margins to be pressured by an intense promotional environment, and we continue to have our longer-term concerns about the structural challenges in the department store space.”

In addition to Lejuez’s skepticism, Kohl’s was faced with a poor reaction from investors, who sent its stock down 3.2 percent to $56.07, and a reduction in its corporate credit rating to “BBB” from “BBB-plus” by Standard & Poor’s Ratings Services based on “operating performance that is weaker than our previous expectations, with sustained negative same-store sales for the first three quarters of 2014.”

Reporting after the close of the markets, Nordstrom posted the strongest numbers of the day, with earnings up 3.6 percent and comps ahead 3.9 percent. Still, while maintaining or boosting its full-year outlook for net and comparable sales, it reduced its projections for margins and, partially because of its acquisition of Trunk Club, earnings.

Nordstrom also reported a 24.1 percent increase in inventory at the end of the quarter, which translated to about 18 percent on a per-square-foot basis. While about three-quarters of this growth was attributed to the retailer’s expansion plans, the remainder represented “higher-than-planned” inventory growth at its fast-growing Rack unit.

Nordstrom said it “is executing plans intended to align inventory to an appropriate level by the end of the fiscal year.”

To Customer Growth Partners president Craig Johnson — considered among the “bears” for his expectations for a modest 3.4 percent increase in holiday sales — all the retail results, including those from Macy’s Inc. and J.C. Penney Co. Inc. on Wednesday, reflect a consumer still struggling with stagnant wages and discretionary income.

“You saw it with strength from Macy’s at Herald Square and I’m sure it will be true for Tiffany & Co. when it reports later on, but you find much stronger growth in places in and around New York City and Washington than you do in what some call ‘fly-over’ country,” he said. “Saks on Fifth Avenue, I think, will be stronger than the branch stores. I think a lot of analysts predicting 4 to 5 percent gains are doing their store checks on Fifth Avenue.”

He noted that even Wal-Mart’s 0.5 percent U.S. comp increase came primarily because of inflation in two areas — pharmacy and food — as groceries and consumables account for about 57 percent of the company’s sales. “They’re not hitting food numbers like Kroger and they’re not hitting pharmacy numbers like Walgreen,” he said, adding that some of the supposed benefits of lower gas prices have been virtually erased by higher prices for food. Price increases in food have outstripped the gas price reductions by about $2.5 billion a month, he said.

“That’s about a 1 percent headwind when it all nets out,” Johnson added.

Despite those headwinds, Wal-Mart’s comp increase for the concluded quarter helped raise its stock 4.7 percent to $82.94, helping to lift the Dow Jones Industrial Average 0.2 percent to 17,652.79. Nordstrom shares moved up 0.6 percent to $73.25 during regular trading hours and another 2.2 percent to $74.85 in after-hours trading.

Dillard’s shares were up 3.1 percent to $112.76 as it overcome slightly lower revenues with improved profits and margins.

Among the results reported Thursday:

WAL-MART STORES INC.

For the three months ended Oct. 31, the Bentonville, Ark.-based retail giant posted net income for continuing operations of $3.71 billion, or $1.15 a diluted share, 0.4 percent below the $3.73 billion, or $1.14, recorded in last year’s quarter. The earnings per share figures were 3 cents higher than the $1.12 result expected, on average, by analysts.

Total revenues rose 2.9 percent to $119 billion, from $115.69 billion in last year’s third quarter.

While U.S. comps were up 0.5 percent, comp traffic was down 0.7 percent, offset by a 1.2 percent in average ticket.

Global Internet sales surged 21 percent and the international division posted a 1.7 percent sales increase to $33.7 billion.

“We need to continue to improve the customer experience, both in our stores and online, to deliver stronger sales growth and strengthen our bottom-line performance,” said Doug McMillon, president and chief executive officer.

The retailer saw strength in its nascent Neighborhood Markets, where comps rose 5.5 percent. The format, which is smaller than a SuperCenter, is being rolled out.

KOHL’S CORP.

In the three months, the midtier department store’s net income fell 19.8 percent to $142 million, or 70 cents a diluted share, from $177 million, or 81 cents, a year ago, while net sales slipped 1.6 percent to $4.37 billion from $4.44 billion. Comparable-store sales were down 1.8 percent, on top of the 1.6 percent decrease a year ago. Wall Street analysts’ consensus estimate was for EPS of 74 cents on sales of $4.41 billion.

Wesley S. McDonald, chief financial officer, said on a call to analysts that “Transactions per store were down 2.6 percent, while average transaction value was up 0.8 percent.” He said the gross margin rate was 37.2 percent, or 28 basis points lower than a year ago, due in part to increased penetration of national brands.

Stifel analyst Richard Jaffe reiterated his “buy” rating on the stock. He said while near-term uncertainty exists, “we remain hopeful longer-term” because of the rollout of Kohl’s loyalty program, the upgrading of half of its beauty departments and improvements in its marketing and merchandising.

NORDSTROM INC.

The Seattle-based retailer’s net income rose 3.6 percent to $142 million, or 73 cents a diluted share, from $137 million, or 69 cents, a year ago. Total revenues rose 8.9 percent to $3.14 billion from $2.88 billion, which included an 8.9 percent net sales gain to $3.04 billion from $2.79 billion. Comparable-store sales rose 3.9 percent, with Nordstrom and the direct business up 3.4 percent and Nordstrom Rack up 1.7 percent. Full-line store comps were flat while direct sales rose 22 percent. Wall Street was expecting EPS of 71 cents on sales of $3.1 billion.

The company said top-performing categories in the quarter included accessories, cosmetics and men’s apparel. President Blake W. Nordstrom told analysts during a conference call that the company has been focused on its customer strategy, which “provides clarity as we address allocation of our resources, both capital and people, to serve our customer in the manner they expect from us. This focus has positioned us to engage with the customer across multiple channels in full-price, half-price, stores and online.”

DILLARD’S INC.

The Little Rock, Ark.-based department store saw net income for the three months rise 8.4 percent to $55.2 million, or $1.30 a diluted share, from $50.9 million, or $1.13, in the 2013 quarter. Eliminating a 9-cent benefit from the sale of a store, EPS was $1.21, 4 cents below the $1.25 expected, on average, by analysts.

Net sales in the quarter dropped 0.6 percent to $1.46 billion from $1.47 billion in last year’s period. Merchandise sales, excluding Dillard’s construction business, fell 1 percent to $1.42 billion.

William Dillard 2nd, ceo, said, “Although comparable sales declined 1 percent, we were pleased with a 69 basis-point merchandise gross margin improvement, with our inventory control and with our strong operating cash flow. We believe we are positioned very well for the holiday season, and we look forward to providing premium Dillard’s service to our customers.”

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