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Retailers Expect Downturn To Last

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The Associated Press

The Tampa Tribune

Published: May 21, 2008

NEW YORK - For U.S. retailers, the phrase "challenging environment" has become a shared refrain for one of the toughest quarters in decades. And merchants expect the climate to remain rough for the rest of the year as higher gas and food costs as well as slumping home prices weigh on shoppers.
Discount retailer Target Corp. reported Tuesday that first-quarter earnings fell 8 percent on weaker-than-expected sales, particularly of nonnecessities such as lawn furniture.

Saks, the operator of luxury chain Saks Fifth Avenue, posted a 66 percent profit compared with first-quarter results hobbled by one-time charges a year ago, but said heavy discounting hurt profit margins.

Shares of Target slipped 63 cents to $54.29, though results beat Wall Street estimates. Saks' shares tumbled 93 cents to $13.20 as results missed analysts' projections. Saks also forecast that operating profit margins will remain relatively unchanged from 2007.

Target's president and chief executive, Gregg Steinhafel, told investors in a conference call that the discounter is stressing its sale prices more in its ads, especially the 50 million newspaper circulars it puts out, to grab a bigger share of the $107 billion in tax stimulus checks being distributed now to American households.

"We're just very mindful that the consumer is very cash-strapped right now and is looking for good values. They're looking for more sale merchandise, and we are responding," Steinhafel said.

Target reported a profit of $602 million, or 74 cents per share, in the three months that ended May 3, down from $651 million, or 75 cents per share, during the same period last year. Analysts surveyed by Thomson Financial expected 71 cents a share.

Minneapolis-based Target said revenue rose 5 percent to $14.8 billion from $14 billion. Analysts had predicted $14.92 billion.

The company said profit margins declined slightly from last year because sales grew faster in low-margin categories, which generally includes food and essentials such as paper towels. And Steinhafel said shoppers are increasingly buying replacement pillows and sheets rather than a whole new set. In its lawn and patio items, consumers are buying new seat cushions rather than all-new lawn furniture.

Sales at established stores fell 0.7 percent. Retail profits not counting interest and taxes fell 2 percent to $959 million.

Chief Financial Officer Doug Scovanner said that for the full year, the analysts' consensus of $3.47 "lies within a reasonable range," but Target expects the second quarter to be "somewhat softer" than the consensus of 79 cents.

"Our top line growth will likely remain sluggish until we see some stability or improvement in the economic environment," he said.
Saks earned $18.27 million, or 13 cents per share, for the three months that ended May 3. That compares with $11.04 million, or 7 cents per share, in the year-ago period. The year-ago period included 12 cents a share in one-time charges.

Revenues rose to $862.35 million compared with $792.75 million in the year-ago period. Same-store sales rose 8.4 percent.

Analysts surveyed by Thomson Financial expected higher profits of 17 cents per share in the latest period on lower revenue of $841 million. The estimates typically exclude one-time items.

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