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Retail Earnings Hinge On 'Haves' Spending

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Bloomberg News

Published: November 21, 2007

Target Corp., Limited Brands and Dillard's reported quarterly earnings that trailed analysts' estimates after rising mortgage payments and gasoline prices crimped consumer purchases.

Saks Inc., the luxury retailer that sells $2,395 Akris Punto jackets and $720 Christian Louboutin sandals, more than tripled third-quarter profit on tourist spending and shoe sales in its main New York store.

Unusually warm weather hurt demand for sweaters, coats and fleece apparel and contributed to slowing sales by Target and Dillard's. J.C. Penney Co., Kohl's Corp. and other retailers earlier lowered profit predictions for the holidays as consumers hesitate spending amid the worst housing slump in 16 years.

"When I look at all of the reports that we've had over the past week as well as looking at today, we are evidently in a period of haves and have-nots," said Patricia Edwards, a Seattle-based money manager at Wentworth, Hauser & Violich. "The haves are going to get more and the have-nots are going to get less this season."

Target shares fell $2.21, or 4.1 percent, to $51.69. Saks was down 30 cents, or 1.5 percent, to $19.83. Dillard's Class A shares rose 90 cents, or 5.4 percent, to $17.43. Limited Brands's stock declined 1 cent to $17.53.

Target, based in Minneapolis, said it will buy as much as $10 billion of its stock, which lost more than a quarter of its value since reaching a record in July.

Third-quarter net income fell 4.4 percent to $483 million, or 56 cents a share, from $506 million, or 59 cents, a year earlier, Target said in a statement. Analysts estimated average profit of 62 cents a share.

Revenue, which includes credit-card payments, climbed 9.3 percent to $14.8 billion. Sales of more profitable items such as clothing and home goods were "soft," Target said.

Limited Brands, owner of the Victoria's Secret lingerie chain, said third-quarter net income fell 48 percent after sales declined and it increased discounts to clear merchandise.

Profit declined to $12.1 million, or 3 cents a share, from $23.5 million, or 6 cents, a year earlier, the Columbus, Ohio-based retailer said in a statement after the close of U.S. markets. Excluding a pretax gain, Limited Brands had a loss of 1 cent, missing analysts' estimates for earnings to break even.

The owner of the Bath & Body Works chain forecast fourth-quarter earnings of 90 cents to $1.05 a share, below August's projection of $1.18.

Revenue at Limited Brands for the three months through Nov. 3 dropped 9.1 percent to $1.92 billion. Sales at stores open at least a year declined at both chains, and the company reduced prices on clothing to sell unsold merchandise ahead of the holiday-shopping season.

Saks' net income jumped to $21.6 million, or 14 cents a share, in the three months through Nov. 3, topping the average analyst estimate. A year earlier, profit was $6.18 million, or 5 cents, the retailer said Tuesday in a statement.

August's opening of a new shoe salon at the Fifth Avenue store spurred sales, as did spending by tourists benefiting from the U.S. dollar's decline, Saks said.

Chief Executive Officer Stephen Sadove said Saks was "well-positioned" for holiday shopping amid reduced expectations by other retailers.

Excluding 3 cents of expenses, the New York-based company earned 17 cents a share, exceeding the 16-cent average estimate of 12 analysts surveyed by Bloomberg. Sales rose 14 percent to $796.1 million, topping the analyst projection of $780.6 million.

Sales at stores open at least a year jumped 11.4 percent in the quarter, Saks said.

Same-store sales may increase in the "high-single digits" in percentage terms in the fourth quarter, the retailer said.

Dillard's, a Southeast U.S. department-store operator, posted a wider third-quarter loss than analysts estimated after expanding discounts to clear out unsold clothing.

The Little Rock, Ark.-based retailer said it will repurchase as much as $200 million of its shares.

Dillard's reported a net loss of $11.3 million, or 15 cents a share. A year earlier, profit was $13.6 million, or 17 cents, the chain said Tuesday.

Revenue declined 4.8 percent to $1.67 billion, missing the $1.69 billion average estimate of analysts.

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