Retailers Target, Saks predict weak sales in '08
NEW YORK - For US 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 and slumping home prices weigh on shoppers.
Discount retailer Target Corp. reported yesterday that first-quarter earnings fell 8 percent on weaker-than-expected sales, particularly of nonnecessities like lawn furniture. Meanwhile, Saks Inc., the operator of luxury chain Saks Fifth Avenue, posted a 66 percent profit compared with first-quarter results hobbled by onetime charges a year ago, but said that heavy discounting hurt profit margins.
Shares of Target slipped 23 cents to $54.29 on the New York Stock Exchange, though results beat Wall Street estimates. Shares of Saks fell 93 cents to $13.20 as results missed analysts' projections. Saks also forecast that operating profit margins will remain relatively unchanged from 2007.
The weak housing market is pummeling the home improvement chains, including The Home Depot Inc., which reported a 66 percent drop in first-quarter profit yesterday. A one-time charge also dragged down profits. On Monday, rival Lowe's Corp. reported a nearly 18 percent decline in first-quarter earnings and reduced its profit outlook for the year.
Target's president and chief executive Gregg Steinhafel told investors in a conference call yesterday the discounter is stressing its sale prices more in its advertising, 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," he said.
Ken Perkins, the president of RetailMetrics LLC, a research company in Swampscott, Mass., expects that stimulus checks won't provide merchants with a big lift, and said he wonders where the impetus lies for a consumer spending rebound.
Target reported a profit of $602 million, or 74 cents per share, in the three months 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 per share.
Minneapolis-based Target said revenue rose 5 percent to $14.8 billion from $14 billion. Analysts 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 like 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.
Saks earned $18.27 million, or 13 cents per share, for the three months ended May 3. That compares with $11.04 million, or 7 cents per share, in the year-ago period.
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.
