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Retailers find ways to boost earnings

Wal-Mart said same-store sales in the United States had declined, but the country’s largest retail chain reported that net income had increased 5.7 percent because of what it called “strong expense management,’’ among other things. Wal-Mart said same-store sales in the United States had declined, but the country’s largest retail chain reported that net income had increased 5.7 percent because of what it called “strong expense management,’’ among other things. (Robyn Beck/AFP/Getty Images/File 2009)
By Stephanie Clifford
New York Times / August 17, 2011

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Even as worries grow about another economic downturn, major retail companies continue to report strong earnings, thanks to tough lessons from the recession.

Some retailers turning a solid profit are doing so despite sluggish sales, including Wal-Mart, which said yesterday that same-store sales in the United States had declined for the ninth consecutive quarter. Still, the company, the country’s largest retail chain, reported that net income had increased 5.7 percent because of what it called “strong expense management,’’ among other things.

Retail analysts said results reported over the last week by a broad cross section of retailers - including Macy’s, Saks Fifth Avenue, and Kohl’s - suggested that whatever happened with consumer spending, the retail sector was better equipped to cope than it was when the recession hit.

Among the lessons learned, said Bradley Thomas, a retail analyst with KeyBanc Capital Markets, are keeping inventories lean, using marketing dollars strategically, and quickly marking down slow-moving items so they do not have to be priced later at rock-bottom prices.

The slate of results reported yesterday showed varied sales numbers. Saks Fifth Avenue had a large same-store sales increase of 15.5 percent for the quarter. Home Depot’s sales were strong; the discount retailer T.J. Maxx had a good sales quarter; and Wal-Mart said its same-store sales in the United States had declined by 0.9 percent.

All four retailers posted profits better than Wall Street had expected, and all except Saks raised their full-year profit projections. In explaining the results, retail executives said that although the economy was volatile, they had been through ups and downs like this before.

“If we do experience a prolonged downturn, we’ll approach it in the same way we did in the past, focusing on controlling what we can control: expenses, capital spending, and inventory,’’ Stephen I. Sadove, chairman and chief executive of Saks, told investors yesterday. He said Saks was better positioned than in 2008 because of “carefully controlled’’ inventory, a stronger balance sheet, decreased capital spending, and the closure of seven full-line stores in the last year and a half. Retailers of all stripes said they had not yet seen outsize effects among shoppers from the recent stock market swings, but the higher-end retailers expressed greater confidence about sales in the future than did the lower-end ones.

“Our August comp sales are in line with our comp sales forecasts for the fall season,’’ Sadove said. He added that full-price selling was now more prevalent than it had been before the recession, and that he expected that trend to continue.

Sadove’s comments echoed those last week from executives at Nordstrom and Macy’s, which owns the higher-end Bloomingdale’s. Like Saks, both companies posted strong sales and higher-than-expected profits. Both also raised their profit outlook for the year.

At the lower end of the retail world, the mood has been more subdued. At Wal-Mart, executives said that shoppers were under as much economic pressure as ever, and that the job market was now worrying them even more than high gas and food prices.

“They’re trading down to stretch their budgets, buying a lower-priced brand of detergent, moving from branded canned goods to private label and purchasing half gallons of milk instead of gallons,’’ Michael T. Duke, the chief executive, said.

Those worries among customers contributed to the continuing slide in same-store sales, but Wal-Mart posted a higher-than-expected profit nonetheless. Net income at the company increased to $3.8 billion, or $1.09 a share, a penny better than analysts had projected. Its revenue rose 5.4 percent to $109.3 billion.

In addition to “strong expense management,’’ Duke said, Wal-Mart was getting inventory levels under control, while better sales at Sam’s Club and Wal-Mart’s international division also contributed to the healthier bottom line.

Wal-Mart said its full-year profit should be higher than expected, at $4.41 to $4.51 a share.