Wal-Mart struggles, upscale stores shine

GDO Report

For the three months ended July 31, Bentonville, Ark.-based Wal-Mart earned $2.8 billion, or 67 cents per share, up from $2.65 billion, or 62 cents per share, in the year-ago period. That was the smallest quarterly gain since the retailer's second quarter of 2001, according to Thomson Financial. Wal-Mart reported sales of $76.8 billion in the period, up 10.2 percent.

Analysts had expected per-share profits of 65 cents on revenue of $77.46 billion.

Sales in stores open at least a year, known as same-store sales, rose 3.5 percent for the quarter at U.S. stores - 3.6 percent in the Wal-Mart division and 2.9 percent at Sam's Club warehouse stores. The company projected same-store sales gains in the third quarter of between 3 percent and 5 percent.

Wal-Mart shares fell $1.53, or 3.12 percent, to close Tuesday at $47.57; they gained 13 cents in after-hours hours trading. The disappointing results offer further evidence that the discounter can't rely on the lowest prices to fuel growth in sales and profit as rivals like Target Corp. and J.C. Penney Co. Inc., both of which appeal to a higher-income shopper, keep sharpening their merchandising assortment. While Wal-Mart began to expand into trendier apparel and home fashions this year, the question is whether it can lure shoppers fast enough to turn business around.

Wal-Mart Chief Executive Lee Scott blamed high gasoline prices for the company' shortfall. Scott said a cool and wet spring got the quarter off to a slow start but summer came in stronger than forecast. Scott said in a call with investors Tuesday that inflation appears to be under control, except when considering fuel prices.

"I worry about the effect of higher oil prices," he said. Scott said higher prices at the pump could erase economic gains for a portion of Wal-Mart's customer base.

Scott said the company has kept its low-price items but has improved its mix of merchandise in mid- and premium-price categories.

Wal-Mart projected it would earn between 55 cents and 59 cents per share for its third quarter and between $2.63 and $2.70 for the year. Analysts are expecting a profit of 60 cents per share for the third quarter and $2.66 for the year.

In contrast, shoppers at moderate-price department store retailer J.C. Penney Co. Inc. and at upscale Nordstrom Inc. focused on fashion rather than fuel, resulting in strong results.

Penney recorded a sharp increase in profits, boosted by strong sales of merchandise across all divisions, and said that annual profits would surpass Wall Street expectations. Shares of J.C. Penney Co. Inc. fell $2.16, or 4.2 percent, to close Tuesday at $49.74.

For the three months ended July 30, Penney earned $131 million, or 50 cents per share, compared with last year's net income of $1 million, which amounted to a per-share loss of 2 cents. On a continuing operations basis, Penney's earnings were $122 million, or 46 cents per share, versus $68 million, or 22 cents per share, a year earlier. The company's earnings from ongoing business topped analysts' average estimate for per-share income of 40 cents.

Net sales totaled $3.98 billion, a gain of 5 percent from $3.78 billion a year earlier but just missing analysts' consensus target of about $4 billion. Same-store sales grew 4.2 percent last quarter, after increasing 6.9 percent a year ago. Meanwhile, catalog and Internet sales jumped 7.1 percent, compared with a 1.6 percent decline last year.

Penney last month closed its anchor store at Tri-County Mall as it opened a slightly smaller store in Butler County.

Nordstrom had a 39 percent increase in profits, beating analysts' estimates. Nordstrom saw its stock fall $1.48, or 4.54 percent, to close at $31.12, but its upbeat results, announced after regular trading, helped the stock rise $1.33, or 4.3 percent, to $32.45 in after-hours trading.

Teen retailer Abercrombie & Fitch Co. posted big profit gains in the second quarter, though results missed analysts' forecasts. Abercrombie & Fitch enjoyed a 35 percent increase in second-quarter profits from a year ago, helped by strong sales of denim and knit fashions. The company, saw its shares fell $2.32, or 3.7 percent, to $61.23, and drop another $5.25, or 8.6 percent after regular trading.