Retailers' profits sluggish

May 15, 2001: 10:05 a.m. ET

Wal-Mart, J.C. Penney 1Q in-line, but down from year-ago; Home Depot beats

NEW YORK (CNNfn) - Two of the nation's biggest retailers, Wal-Mart Stores Inc. and Home Depot, reported higher first-quarter profits Tuesday, with Wal-Mart meeting Wall Street forecasts while Home Depot topped expectations.

Separately, J.C. Penney Inc. (JCP: down $1.01 to $20.04, Research, Estimates), the nation's No. 5 retailer, reported first-quarter earnings in-line with expectations.

Home Depot also said in a conference call with analysts that it remains comfortable with analysts' second-quarter estimates.

Retailers' profits have shrunk with the slowing economy as consumers, worried about losing their jobs, rising gas prices and a volatile stock market, have cut back on spending.

Wal-Mart (WMT: down $1.85 to $52.50, Research, Estimates) said profits rose 4 percent in the quarter, but that's down sharply from the 19 percent increase reported a year earlier.

Still, discount stores such as Wal-Mart have done relatively well with the economy slowing as many consumers seek bargains and shun more expensive department stores.

At the same time, people have spending to spruce up their homes, as evidenced by Home Depot's (HD: up $0.90 to $50.05, Research, Estimates) better-than-expected earnings as well as the nation's relatively strong real estate market. Industry analysts say that when times are bad, consumers turn inward and seek refuge in their homes.

Wal-Mart, the world's biggest retailer, reported net income of $1.4 billion, or 31 cents a share, for the quarter ended April 30, up from $1.3 billion, or 30 cents, a year earlier. Analysts had forecast profits of 31 cents a share on average, according to First Call, which tracks Wall Street forecasts.

Sales rose 11.8 percent to $48 billion from $43.4 billion.

Click here to view other retail stocks
Wal-Mart, a Dow component, said during a conference call that it expects second-quarter earnings per share growth similar to the first quarter, with earnings coming within analysts' estimates of 37 or 38 cents a share. It also expects double-digit earnings per share growth for the second half and full year, provided sales remain steady. Analysts anticipate full-year earnings of $1.56 a share, according to First Call.

Last month Wal-Mart warned that weak sales driven by cool spring weather would cause it to miss Wall Street's first-quarter estimates by a penny a share. Wal-Mart stock, one of 30 in the Dow Jones industrial average, fell 55 cents to $53.80 in early trading.

Home Depot drills 1Q
Meanwhile, Atlanta-based Home Depot reported net earnings of $632 million, or 27 cents a diluted share, for the quarter, up from $629 million, also 27 cents a share, a year earlier. Analysts had forecast 25 cents a share, according to First Call.

"The economy has fought us every step of the way, and for us to have delivered that kind of result is a real tribute to the men and women of this company," CEO Robert Nardelli told CNNfn's The Biz Tuesday. "We've been encouraged most recently with lumber prices starting to firm up, and we're very pleased with lawn and garden starting to firm up. People are reinvesting in the exteriors of their homes that were brutalized by the long winter."

The company also remains comfortable with second-quarter estimates of 37 cents a share, Chief Financial Officer Carol Tome told analysts during the call, but noted sales at stores open at least a year would be sluggish in the quarter.

Sales at the nation's largest home improvement retailer rose 10 percent to $12.2 billion.

Home Depot, along with rival Lowe's (LOW: up $1.47 to $66.27, Research, Estimates) has suffered in recent quarters from a drop in prices for lumber and building materials even though the housing market remained fairly robust. Cooler spring weather also tempered sales of spring-related garden merchandise and other materials.

Home Depot stock, also a Dow component, rose 70 cents to $49.85.

J.C. Penney does it right
The troubled department store chain reported first-quarter income excluding one-time charges of 11 cents a share versus 13 cents a share a year earlier. The company did not provide a dollar income figure. Analysts on average had expected 11 cents a share earnings, according to First Call.

Plano, Texas-based Penney also warned that it anticipates a sharply wider-than-expected loss for the second quarter as the economy continues to affect department store sales. The company said it now expects a second quarter loss of 20 to 25 cents a share. Analysts on average had forecast a loss of 11 cents a share, according to First Call.

Sales were little changed at $7.52 billion.

Elsewhere, office products retailer OfficeMax (OMX: down $0.23 to $3.65, Research, Estimates) reported a slightly narrower-than expected loss Tuesday.