As retailer quarterly reports roll in, the “earnings beat” parade continues. Retailers continue to tout their cost-cutting and inventory management initiatives, even as steep sales declines continue to dampen the outlook for the remainder of the year. Below we highlight results from 4 of the companies we cover:
- Luxury retail continues to be the hardest-hit sector: Saks Inc. posted a loss of $54.5 million ($.39 diluted EPS) compared to a loss of $32.7 million ($.24 diluted EPS) in the same period last year. While this was the 5th consecutive quarterly loss for the company, results were better than analyst estimates for a loss of 52 cents per share. Net sales for the quarter declined 14.5% to $561.7 million, while same-store sales decreased 15.5%. The company said it continued to experience weakness across all merchandise categories and geographies, with the Direct-to-Consumer business and Off 5th showing relative strength. Saks expects comparable store sales declines for the second half of the fiscal year in the mid-to-high single digit range, while comparable store inventory levels are expected to decrease in the low- to mid-teen percentage range through the second half of 2009.
- Off-price continues to shine: TJX Companies posted a quarterly profit of $261.6 million ($.61 diluted EPS), an increase of 31% over last year’s second quarter. Net sales increased 4% to $4.748 Billion and same-store sales also increased 4%. Commenting on the results, Carol Meyrowitz, President and Chief Executive Officer of TJX, stated “It is very exciting to report how well we are doing despite the economic downturn. Our strong second quarter results were achieved on top of three years of very strong performance. Our extreme values on exciting brands and fashions continue to resonate with consumers and drive extraordinary increases in customer traffic counts. We saw strength across the board, with virtually all of our divisions either meeting or exceeding our second-quarter targets. As we enter the back half of the year, we will continue to plan prudently, but believe we have tremendous opportunities to build upon our strong first half,”
- Target reported that fiscal 2nd quarter net income fell 6% to $594 million, or $.79 diluted EPS, better than the 66 cents per share analysts were expecting. Net Sales fell 2.7% to $14.6 Billion, while same-store sales declined 6.2%. Top-line results were slightly weaker than analysts projected, and this is the 6th consecutive quarter of same-store sales declines for the company. “Second quarter earnings were stronger than expected due to very strong operating margin in our retail segment, and credit card segment performance in line with expectations,” said Gregg Steinhafel, chairman, president and chief executive officer. “Looking forward to the second half of the year, we are focused on initiatives to drive incremental traffic and sales in our stores while maintaining disciplined execution in both of our business segments.”
- Department store retailer Dillard’s reported a 2nd quarter loss of $26.7 Million ($.36 diluted EPS) compared to a loss of $38.3 Million ($.51 diluted EPS) in the year ago period. Net sales decline 11.2% to $1.428 Billion, while same-store sales decreased 13%. The company has now reported 12 consecutive quarters of same-store sales declines. Dillard’s Chief Executive Officer, William Dillard, II, stated, “Although we are clearly disappointed with a net loss for the second quarter, we were pleased to realize continued significant benefits from our aggressive actions pertaining to inventory management, expense reduction and cash conservation.”
While it’s admirable that most companies have been able to beat watered-down earnings estimates, cost-cutting and inventory slashing is not a sustainable growth strategy. Those looking for inventory replenishment to drive growth in the second half of the year should take a closer look at what retail executives are saying on quarterly conference calls. Demand remains, and is expected to remain extremely weak through the holiday season, and most retailers continue to cut inventories at a faster rate than sales are declining.
Back-to-school season has been a disappointment so far, and most analysts expect this to be the worst season in a decade. There is still some hope yet though, as several states will be holding tax holidays this weekend, and the National Retail Federation reported that the average American family has only completed 41.6% of their back-to-school shopping as of August 11th.
Year-over-year comp declines should start to moderate by the Fall, as retailers will no longer be dealing with comparisons to last summer when consumers had stimulus checks to spend. In addition, October/November of last year was when consumer spending really fell off the cliff, so we should start to see improvement in same-store sales results from most retailers by then.
