Three major retailers' earnings improve
By Heather Landy
Bloomberg News Service
NEW YORK — Wal-Mart Stores Inc. and Home Depot Inc. lifted fiscal third-quarter profits, and J.C. Penney Co. rebounded from a loss, as the chains controlled costs and used low prices to attract shoppers in the slowing economy.
Net income rose 8.2 percent at Wal-Mart, the No. 1 retailer,and 20 percent at Home Depot, the largest home-improvement chain. At J.C. Penney, turnaround efforts helped generate a $31 million profit, compared with a $30 million loss in the year-ago quarter.
Each chain took a different approach to keep earnings afloat in the slowing economy. Wal-Mart added stores and cut prices to take customers from rivals. Home Depot scaled back inventory and expansion plans to lower expenses, while J.C. Penney Chairman Allen Questrom revamped the mix of merchandise.
All three stocks have performed better this year than the Standard & Poor's 500 Index.
Retailers "have had a year to react to that slowdown and now, for the time being, they are a good place to be in a stock market that is otherwise still being characterized by earnings misses," said analyst Daniel Popowics at Fifth Third Bank, which owns Wal-Mart and Home Depot shares.
Home Depot's stock jumped $2.88 to $44, while J.C. Penney rose $1.50 to $25.25. Wal-Mart shares fell 58 cents to $55 after the company said it probably would meet, not beat, fourth-quarter profit forecasts.
At Bentonville, Ark.-based Wal-Mart, net income in the quarter ended Oct. 31 rose to $1.48 billion, or 33 cents a share, from $1.37 billion, or 31 cents, a year ago. Per-share profit matched the average estimate of analysts polled by Thomson Financial/First Call.
An expanded selection of groceries and steeper-than-usual discounts helped Wal-Mart increase sales 15 percent to $52.7 billion. Sales at stores open at least a year rose 6.7 percent, outpacing the industry's composite gain each month of the quarter.
"Food retailing and basic commodities can be a very good business if you are turning your merchandise quickly," Fifth Third's Popowics said.
"Wal-Mart can do that," he said.
Home Depot said net income rose to $778 million, or 33 cents a share, from $650 million, or 28 cents, a year earlier. Sales in the quarter ended Oct. 28 rose 15 percent to $13.3 billion from $11.5 billion.
Chief Executive Bob Nardelli has demanded lower prices from suppliers in his cost-cutting efforts and relied on high-margin services like tool rentals to boost profits.
Sales at stores open at least a year were unchanged, below analysts' forecast for a 1 percent gain.
"Home Depot will hold up well, relative to other retailers, but they are not immune (to a recession)," said market strategist Phil Larkins of investment firm Legacy South Inc., which owns Home Depot shares. "With sales slowing, Home Depot has to keep the costs down. That's what Home Depot is doing."
Plano, Texas-based J.C. Penney had net income of 9 cents a share, matching forecasts. The year-ago loss was 30 cents. Sales in the quarter ended Oct. 27 rose 2.5 percent to $7.73 billion.
Questrom, who also is chief executive, has added the Disney line of children's clothing and Avon makeup to J.C. Penney stores to revive sales, while the company's Eckerd drugstores filled more prescriptions.
"They are improving merchandising and injecting more fashion into it," said Howard Hansen, portfolio manager at Lord Abbett & Co., which owns 1.8 million shares. "The department-store side of the business has some real momentum. Pharmacy sales are driving sales at Eckerd."
