Fuel Costs Hurt Retailers' Profits

From Times Wire Services

NEW YORK--Wal-Mart Stores Inc. and Home Depot Inc. on Tuesday said fiscal third-quarter profits rose at a slower pace than in previous quarters as higher fuel prices led consumers to slow spending and increased the retailers' costs. Earnings declined at Target Corp. and office-supplies chain Staples Inc. J.C. Penney Co. had a loss after cutting prices to clear out goods at its department stores and Eckerd drugstores. Shoppers curtailed spending as a 36% rise in oil prices this year, higher interest rates and stock market declines raised concern that the U.S. economy is slowing. Wal-Mart and other retailers said they controlled inventories to keep costs down and expect sales to pick up in the fourth quarter's holiday shopping season. Most retailers also met forecasts for the week ended Nov. 11, led by demand for appliances, electronics, shoes, women's apparel and outerwear, said Bank of Tokyo-Mitsubishi and UBS Warburg, which track sales at about 80 chains. "Things are slow, but it's not continuing to unwind or go on a downward spiral," said Bank of Tokyo economist Michael Niemira. "That's the good news." Many retail stocks rose. Wal-Mart increased $1.56 to close at $46.88 and Home Depot gained $1.81 to close at $39.19. Target rose $2 to close at $28.19, all on the New York Stock Exchange. For some retailers, the fourth quarter may not get any easier. Staples, No. 2 in its market behind Office Depot, lowered earnings forecasts for the quarter because of slower consumer spending and price cuts needed to compete with rivals. Staples fell 63 cents to $10.75. Home Depot said lower prices for lumber and other building materials will hurt fourth-quarter sales. Wal-Mart's net income rose 5.8% to $1.37 billion, or 31 cents a share, from $1.29 billion, or 29 cents, a year ago. Sales in the quarter ended Oct. 31 rose 13% to $40.4 billion, lagging gains of 20% in the second quarter and 24% in the first. The third quarter was "one of the most difficult quarters in recent retail history," Wal-Mart Chief Executive H. Lee Scott said. Wal-Mart said it gained market share in the quarter and boosted sales at its supercenters, warehouse-size stores with full grocery departments. By selling food, the Bentonville, Ark.-based chain lures shoppers more frequently and helps protect itself from slower economic growth, analysts said. At Home Depot, net income rose 13% to $650 million, or 28 cents a share, from $573 million, or 25 cents, a year ago. The year-to-year increase was smaller than the 23% in the second quarter and the 29% jump in the first as an increased supply of lumber prompted Home Depot and its rivals to slash the prices charged to consumers. The Atlanta-based chain also was hurt by higher gasoline and oil prices, which raised distribution costs and squeezed profit margins. Nonetheless, demand for floor coverings and kitchen and bathroom products helped lift sales 17% to $11.6 billion. Staples said net income fell 8.5% to $84.7 million, or 19 cents a share, from $92.5 million, or 20 cents, a year ago. While fourth-quarter profit will meet or exceed last year's earnings of 26 cents a share, it will fall short of analysts' 31-cent forecast, the Framingham, Mass.-based company said. Office-supplies chains have been hurt by slowing computer sales as shoppers reduce spending, and by rising competition from lower-price rivals such as Wal-Mart and its Sam's Club wholesale warehouse chain. Target, meanwhile, reported its first quarterly profit decline in four years as sluggish demand for fall clothing led to price cuts at the company's discount and department stores. Profit from operations dropped 10% to $216 million, or 24 cents a share, from $241 million, or 26 cents, a year ago. Sales rose 8.3% to $8.58 billion. Minneapolis-based Target ranks behind Wal-Mart and Kmart Corp. in sales. J.C. Penney said it had a loss from operations of $23 million, or 12 cents a share, compared with net income of $142 million, or 51 cents, a year earlier. Sales fell 1.2%, as the company slashed prices on clothing and other goods. Among other retailers to report results Tuesday, San Francisco-based home-furnishings retailer Williams-Sonoma Inc. said third-quarter profit fell 75% to $2.34 million, or 4 cents a share, from $9.24 million, or 16 cents, a year earlier. Sales rose a lower-than-forecast 23% to $398.7 million. Williams-Sonoma also said it expects fiscal fourth-quarter earnings will be hurt as the economy slows and consumers are less enthusiastic about shopping. Intimate Brands Inc., the biggest U.S. retailer of lingerie and bath products, said fiscal third-quarter profit rose 12%, after sales at its Victoria's Secret and Bath & Body Works stores rose. Net income rose to $43.2 million, or 9 cents a share, from $38.4 million, or 8 cents, a year earlier. Sales rose 14% to $925.1 million. The company said it expects to meet estimates of 65 cents to 67 cents in the fourth quarter. TJX Cos., owner of the T.J. Maxx and Marshalls discount apparel chains, said fiscal third-quarter profit rose 4.3%. Sales rose 10% to $2.46 billion. Saks Inc., owner of Saks Fifth Avenue and other department stores, said its profit fell for the third quarter, missing analysts' estimates by 2 cents, as charges related to the consolidation of some of its businesses and the spinoff of its Saks Fifth Avenue unit took their toll on results. The Birmingham, Ala.-based company said its net income, excluding charges, was $1 million, or 1 cent a share, compared with a profit of $31.6 million, or 22 cents, a year-ago. Sales for the quarter rose 1.2% to $1.566 billion.

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