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RETAIL : Profits rise, but chains don't get comfortable : Wal-Mart, Kohl's and Nordstrom expect a tough holiday season

November 13, 2009|Andrea Chang

Three major retailers -- a discounter, a mid-priced department store and an upscale chain -- said their profits were up in the fiscal third quarter, showing significant improvement over last year's dismal fall season.

But sales figures at Wal-Mart Stores Inc., Kohl's Corp. and Nordstrom Inc. indicated that consumers were still not ready to spend freely, causing continued concern about the holiday season.

Although the results beat company expectations, executives at all three chains conceded that they have a tough selling period ahead. Wal-Mart and Kohl's offered guarded holiday outlooks that tempered the positive tone of their results.

"As we enter the fourth quarter, we will continue to focus on providing value for our customers," said Kevin Mansell, chief executive of Kohl's. "We expect them to continue to be conservative in their spending during this holiday season."

Richard Jaffe, a retail analyst at Stifel, Nicolaus & Co., said retailers were right to be cautious.

"It's still tough out there," he said. "After last Christmas, doesn't a little prudence regarding your outlook seem appropriate?"

Of the three chains, which reported their quarterly results Thursday, Kohl's showed the biggest improvement over the same period last year, with profit up 20% to $193 million. Nordstrom reported profit of $83 million, a 16.9% increase, and Wal-Mart earned $3.24 billion, a 3.2% increase.

The strength of the crucial holiday season will depend on whether shoppers turn out in force and spend, with industry watchers hoping pent-up demand and attractive deals spur sales.

But many consumers are saying they will be even more frugal than they were during last year's dismal Christmas season, which was retailers' worst in more than four decades.

Bob Raser, a television producer and director, is planning to spend half as much on the holidays this year and is making a spreadsheet to help him manage his gift expenses.

"I'm going to watch it to make sure I stick to it this year," the Westlake Village resident said. "I'm just so unsure of the future. You never know."

Thursday's earnings reports, which led all three retailers to raise their full-year profit outlooks, were the latest in a string of quarterly retail results this week. On Wednesday, Macy's Inc. reported a $35-million loss and issued a weaker holiday outlook than Wall Street analysts had expected, sending shares tumbling.

At Wal-Mart, which has been ramping up its holiday efforts in recent weeks with aggressive price cuts in key categories, overall sales for the quarter ended Oct. 31 were $98.67 billion, a 1.1% increase from $97.62 billion in its third quarter last year.

But sales at its U.S. stores open at least a year, known as same-store sales and a key indicator of a retailer's health, fell 0.4% in part because of falling prices for key grocery items and deep discounting. Earnings per share were 84 cents, up from 80 cents from the same period last year.

Mike Duke, Wal-Mart's chief executive, said increased productivity and improvement in inventory management contributed to the strong overall performance.

"The sales environment continued to be difficult this quarter, but customer traffic is up throughout the company," he said in a statement. "We are encouraged by both our traffic and market share gains. . . . Few companies have the momentum or opportunity that Wal-Mart has around the world."

Bernard Sosnick, a retail analyst at Gilford Securities, said Wal-Mart was poised to continue to attract shoppers during the holidays despite their reluctance to overspend.

"With high unemployment, uncertainty and a sense of frugality, Wal-Mart is providing a better experience and a better assortment," he said. "Even in the early stages of recovery, Wal-Mart is going to do very well."

At Kohl's, which in September opened 30 new California stores in former Mervyn's locations and has picked up some of the defunct chain's customers, same-store sales were up 2.4% in the fiscal third quarter.

Total sales at the Menomonee Falls, Wis., company increased 6.5% to $4.1 billion. Its $193-million profit, or 63 cents a share, was 20% higher than the $160 million, or 52 cents, it posted for the same quarter last year.

Mansell said he was pleased with Kohl's strong performance, which he attributed in part to better inventory management and higher penetration of its exclusive brands.

"We achieved a positive comparable sales increase in a very difficult environment," he said in a statement.

Jaffe, of Stifel, Nicolaus & Co., said shoppers responded positively to the chain's attractive prices and brands.

"The efforts to bring a more disciplined and efficient operating model to Kohl's are proving productive as management is demonstrating the ability to run the business leanly," he wrote in a note to investors. "Additionally Kohl's has improved its inventory effectiveness, sending the right merchandise to the right store in the right size."

Seattle-based Nordstrom reported fiscal third-quarter profit of 38 cents a share, a penny less than analysts had expected.

But in an encouraging sign for upscale retailers, the chain's sales beat expectations, posting a 3.5% increase to $1.87 billion from $1.8 billion a year earlier. Same-store sales fell 1.2%.

"Although there is continued uncertainty around consumer spending, the company experienced an improving trend in same-store sales in each month of the quarter while effectively managing inventory and expenses," Nordstrom said in a statement.

Shares of Wal-Mart rose 27 cents to $53.24. Shares of Kohl's rose 5 cents to $54.64. Nordstrom released its earnings after the markets closed; its shares fell 35 cents, or 1%, to $34.51 during regular trading and fell more than 5% in after-hours trading.

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andrea.chang@latimes.com

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