PENNEY’S, WAL-MART POST GAINS IN QUARTER
NEW YORK — Wal-Mart and J.C. Penney reported Tuesday moderate gains in third-quarter income from operations, but that didn’t dampen expectations for a robust fourth quarter among Wall Street and retail executives.
As James E. Oesterricher, Penney’s chief executive officer, said in a statement, “We’re confident about our merchandising and marketing programs for the holiday selling season.”
On Monday, Nordstrom, May Co. and Mercantile posted solid third-quarter figures, supporting the optimistic outlook for this quarter. With low unemployment, low inflation and rising consumer confidence, the pieces are in place for solid Christmas selling period, according to retail experts.
In the latest quarter, Wal-Mart’s were up 12 percent to $684 million, or 30 cents a share, against $612 million, or 27 cents. While the earnings weren’t bad and just one cent under Wall Street estimates, they were still below the chain’s historic 15 percent or higher rate of profits.
Robert Buchanan, analyst at NatWest Securities, characterized Wal-Mart’s results as “ho-hum,” but predicted a pretty strong fourth quarter. He expects the discount giant to earn 47 cents a share against a depressed 41 cents a year earlier. Same-store sales are expected to be up 4 percent in the fourth quarter.
Sales last quarter were up 12 percent to $25.64 billion from $22.91 billion. Sales from international operations rose 37 percent to $1.22 billion, but international losses grew to $15 million from $10 million in the year-ago quarter. The company said that the international business “showed considerable progress” and blamed start-up expenses for the losses.
Buchanan noted that the loss reflected openings in China, where two stores were launched last summer. A third unit was launched in Indonesia.
“In view of the immense long-term potential in China, as well as Latin America, I have little problem with international’s widening loss,” Buchanan said.
Wal-Mart’s stock slipped 1 3/8 to 25 1/8 and Penney’s shares were off 1/2 to 52 on the New York Stock Exchange Tuesday.
Penney’s third-quarter earnings before nonrecurring items were up 7 percent to $257 million, or $1.03 a share, against $240 million, or 95 cents. The results met Wall Street’s expectations.
After $21 million in after-tax costs related to the integration of Fay’s drugstores and department store acquisitions, net income came to $236 million or 95 cents a share.
Third-quarter earnings were also hit with a 30 percent increase in bad debts on customer receivables, or about 5 cents a share.
Buchanan said the results were right on target. “Penney’s is looking much better now after having been so dull that it was putting the customers to sleep,” Buchanan said. “The product mix is set to participate in the improved apparel climate.” He’s estimating fourth-quarter earnings of $1.51 a share against $1.31 with comparable-store sales ahead about 5 percent. For the full year, he expects $3.50 against $3.33.
Sales at Penney’s were up 8 percent to $5.5 billion and inventory levels were up 8 percent above year-ago levels. Gross margins as a percent of sales slipped .3 of a percentage point, but was more than offset by a decline in selling, general and administrative expenses to 22.5 percent of sales from 23.4 percent.
For the nine months to Oct. 26, Penney’s net income slipped 8 percent to $471 million, or $1.89, from $512 million or $2.02. Sales were up 2.7 percent.
At Wal-Mart, gross margins in the third quarter eased to 20.25 percent of sales from 20.77 percent, while SG&A inched ahead to 16.88 percent from 16.59 percent. Buchanan said the margin decline reflected the closeout of slow-moving electronics covered by a one-time gain which he estimated at $110 million from the sale of a photo-finishing business to Fuji Photo.
In the nine months ended Oct. 31, Wal-Mart earned $1.961 billion, or 86 cents, up 9 percent from $1.798 billion, or 78 cents. Sales were up 12 percent.