WMT , KSS , TGT ,,, Wal-Mart Earns Disappoint, Target Pleases
Friday May 13, 2:09 am ET
By Anne D'Innocenzio, AP Business Writer
Wal-Mart's First-Quarter Results Disappoint While Target's Earnings Exceed Expectations
NEW YORK (AP) -- Wal-Mart Stores Inc., struggling with higher gasoline prices and slippage in its leadership in the retail industry, reported lower-than-expected first-quarter earnings Thursday and offered a disappointing profit outlook.
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But discount rival Target Corp., which keeps sharpening its appeal to higher-income consumers, enjoyed first-quarter results that exceeded expectations. It offered an upbeat outlook.
Kohl's Corp. announced after the regular markets closed that first-quarter earnings came in a penny short of analysts' expectations.
Shares of Wal-Mart fell close to 2 percent, while Target rose more than 1 percent. Shares of Kohl's slipped 28 cents, and fell another, $1.26, or 2.6 percent after the regular markets closed.
"There's no question that higher gasoline prices have hurt Wal-Mart's consumer, but Wal-Mart is struggling with store-level execution," said Bob Buchanan, a retail analyst with St. Louis-based A.G. Edwards. "They're slow at check-out and they're missing a lot of fashion on the selling floor. Target continues to do a better job in merchandising and executions. And its check-out is lightening fast."
And although Bentonville, Ark.-based Wal-Mart has made some moves to expand into trendier and better quality merchandise like fluffier towels and stylish sweater sets, analysts say it has a way to go.
Moreover, Buchanan believes that controversial issues, from gender discrimination to wage-and-hour violations, that continue to dog the retailer have started to take a toll on its performance.
Wal-Mart reported a 14 percent increase in first-quarter earnings, missing Wall Street forecasts by 2 cents a share. It also warned that second-quarter results will be lower than analysts expected, and said that even though it anticipates better results in the second half, its annual profit goal could be difficult to achieve.
Target, which has expanded its merchandise with designer names like Isaac Mizrahi, enjoyed a 15 percent profit increase that slightly was ahead of Wall Street projections. Chairman and CEO Bob Ulrich said in a statement he remains confident the company will "continue to enjoy profitable market share growth throughout 2005 and beyond."
Kohl's reported a 21 percent increase in net income, while sales increased 15.2 percent for the quarter.
The news came as the Commerce Department reported retail sales for April jumped 1.4 percent in April, the strongest performance in six months. It was far better than the 0.8 percent gain many analysts expected.
Wal-Mart said quarterly net income grew to $2.5 billion, or 58 cents per share, in the three months ended April 30 from $2.2 billion, or 50 cents per share, a year earlier. The company said first-quarter earnings were boosted by $145 million, or 3 cents per share, from tax and legal resolutions. Excluding the items, earnings per share totaled 55 cents per share, a penny below Wall Street expectations.
Sales rose 10 percent to $70.9 billion from $64.76 billion a year ago, while total revenue including sales and other income grew to $71.7 billion from $65.4 billion a year ago.
A consensus of analysts surveyed by Thomson Financial expected the company to earn 56 cents per share on sales of $72 billion.
"Our results were not up to Wal-Mart standards," said President and CEO Lee Scott in a prerecorded call Thursday.
March was the most challenging month in the quarter, he said.
"Gasoline prices rose dramatically, Easter was early and spring was not," he said
Sales at stores open at least a year, known as same-store sales, were up 2.9 percent.
Tom Schoewe, Wal-Mart's executive vice president and chief financial officer, said the company continues to feel the effect of gasoline prices and other pressures, including payroll, insurance and maintenance.
As a result, Schoewe said the company expects sales below expectations for the second quarter, and projected per-share earnings for the period of between 63 cents and 67 cents.
Analysts polled by Thomson Financial had expected 70 cents in the second quarter.
Schoewe said the company could still meet its target of annual profit of between $2.70 and $2.74 cents per share but doing so will be difficult considering the way the first half is shaping up.
The quarter had its bright spots; Sam's Club warehouse stores proved the exception with its operating income growing faster than sales. Also, food sales at Supercenters were up 17 percent. But the company also saw its Supercenter gross margins pressured by fuel prices and freight surcharges. And rising interest rates will hurt Wal-Mart's bottom line; Schoewe said about half of the company's debt is tied to floating rates.
Schoewe said Wal-Mart is making changes to its stores to increase efficiency and production and is looking at ways it can adjust its staffing.
CEO Scott noted he has been pleased with the progress the company has been making in changing its merchandise, but Philip Zahn, an analyst at Fitch Ratings, said "it's going to take some time. It's a cultural shift because Wal-Mart has always been focused on cost."
Wal-Mart's shares fell 95 cents to close at $47.65 on the New York Stock Exchange. That's at the low end of its 52-week range of $46.20 to $57.89.
Meanwhile, Target earned $494 million, or 55 cents per share, in the three months ended April 30, up from $432 million, or 47 cents per share, a year earlier. Analysts surveyed by Thomson Financial expected 53 cents per share on sales of $11.53 billion.
Revenue grew 13 percent to $11.48 billion from $10.18 billion on the strength of new store openings and a 6.2 percent sales increase in same-store sales.
Target added that markups also boosted results, though these were partly offset by higher selling, general and administrative expenses.
Chief financial officer Doug Scovanner said in a conference call that Target recently converted its credit cards to a floating interest rate based on the prime rate, so it benefits from rising short-term interest rates. That should help offset rising interest rates on Target's debt, he said.
"Financially this year is off to a great start," Scovanner said.
He said its second-quarter earnings should match the 53 cents per share estimate from analysts. He said he expects the company to meet analysts' forecasts for a $1.50 per share in combined third- and fourth-quarter earnings.
Same-stores sales should increase 3 percent to 5 percent for May, and 4 percent to 6 percent for the second quarter, he added.
Target rose 60 cents to close at $48.80 on the New York Stock Exchange. Over the past year it has traded between $40.03 and $54.14.
AP writer Chuck Bartels in Little Rock, Ark., and AP Business Writer Joshua Freed in Minneapolis contributed to this report.
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