Q4 Profits: Up at Target, Kohl’s, Limited; Down at Sears

Target Q4 Profit Rises 11% On Improved Sales, Credit Division

Minneapolis—As Target reported today that its fiscal fourth-quarter profit rose 11%, the mass merchant is well positioned for future growth especially against its rival Walmart.

Target reported that for the quarter ended Jan. 29, net income rose to $1.04 billion or $1.45 a share, from $936 million, or $1.24 a share, in the year-earlier period. The most recent quarter’s results included a tax benefit of 7 cents a share. Meanwhile, sales increased 2.8% to $20.3 billion. Analysts’ average estimate was for earnings of $1.40 a share on $20.76 billion in revenue.

Target also benefitted from improvement in its credit-card segment which almost quadrupled to $151 million after a decline in bad debt expense. Receivables fell 15% to $6.9 billion.

The retailer’s same-store sales rose 2.4% in contrast with Walmart, which earlier this week reported its seventh straight quarterly decline in same-store sales at its U.S. division.

“Well Positioned” for Growth

Analysts pointed to other factor contributing to Target’s success, such as giving its store-brand credit- and debit-card users a 5% discount on most purchases and increasing groceries offerings.

Gross margin narrowed to 28.7% from 29.1%, hurt by remodel program in its grocery business and the 5% card discount. Selling, general and administrative expenses fell to 18.1% of sales from 18.5%.

“In 2011, we will continue to focus on driving sales and traffic and providing an enhanced shopping experience through key strategic initiatives that include our ambitious remodel program, 5% REDcard Rewards and the launch of our new Target.com platform,” said Gregg Steinhafel, president/ceo. “Beyond 2011, we plan to expand our store footprint in new ways, opening our first City Target stores in 2012 and opening 100 to 150 Canadian Target stores in 2013 and 2014.”

“Target is something of a comeback story,” said Jim Tierney, chief investment officer at WP Stewart. “They are doing a much better job with their merchandise and their initiatives than they had been.”

“Target’s initiatives seem to be resonating with consumers and Wall Street, a combination of good management, smart ideas and fortuitous timing. At least for now,” said Angela Moore, analyst at MarketWatch.

 

Sears Holdings Posts 13% Q4 Profit Decline

Hoffman Estates, IL–Sears Holdings Corp. reported a 13% decline in fourth-quarter profit as same store sales fell at its U.S. Sears division.

The company blamed falling sales in consumer electronics and apparel that contributed to a 4.5% decline in same-store sales at its U.S. Sears division.

Edward Lampert, chairman, stated in a letter on the corporate website that “our financial results remain at unacceptable levels” and cited delays bringing in redesigned Kenmore appliances among Sears “missteps.”

Comparable store sales fell 1.2% for all Sears Holdings in the quarter ended Jan. 29. Total revenue in the quarter fell to $13.14 billion from $13.25 billion.

Kmart, however, performed better with same stores sales up 2.5%. Top sellers for Kmart were toys, jewelry, apparel and footwear.

Despite the sales decline, the company actually topped analysts’ average estimates for the quarter. Net income profit declined to $374 million or $3.43 a share, from $430 million, or $3.74 a share, in fiscal 2009 fourth quarter. Adjusted earnings came in at $3.67 a share higher than analysts’ average forecast of $3.60 a share in profit and $13.02 billion in revenue.

“Sears remains a very weak retail asset,” said Greg Melich, an analyst at International Strategy & Investment Group, who noted that company’s 4.8% increase in inventories while sales fell indicates Sears may have more markdowns in its first quarter.

Lou D’Ambrosio Named President/CEO

Prior to releasing the quarterly report, Sears Holdings announced Wednesday that Lou D’Ambrosio, who has been consulting six months for the company, has been named chief executive and president. D’Ambrosio succeeds Bruce Johnson, who had been interim ceo for three years.

D’Ambrosio served as ceo of software company Avaya from 2006 to 2008; he stepped down from the post in 2008 for medical reasons. Prior to joining Avaya in 2002, he spent 16 years at IBM.

“He is good with technology. He’s not a merchant,” Brian Sozzi, an analyst at Wall Street Strategies in New York, said in an interview yesterday. The question is “what does Sears stand for. I don’t think this hire brings any clarity on this question.”

Commenting on named D’Ambrosio’s appointment, Lambert said the company was “determined to find a leader with information and technology experience who could catalyze the transformation of our portfolio of businesses in the context of the evolution of the retail industry that is occurring more broadly.”

Retail analysts, who have been criticized Lambert for skimping on investing in upgrading its Sears stores, were mixed about D’Ambrosio as ceo.

Sears “is a big company long heading downhill with nobody applying the brakes,” said Craig Johnson of Customer Growth Partners. “And now they’ve changed the driver, but the real back-seat driver — who controls the brakes, gas pedal, steering wheel and maintenance — is staying the same.”

D’Ambrosio is good with technology. He’s not a merchant,” Brian Sozzi, an analyst at Wall Street Strategies said. The question remains “what does Sears stand for. I don’t think this hire brings any clarity on this question.”

 

Kohl’s Posts First Dividend As Q4 Profit Rises 14%

Menomonee Fall, WI—Shares of Kohl’s rose the highest in nine months in early morning trading in New York after the department store retailer declaring its first-ever dividend and another profitable quarter.

The company announced today a quarterly dividend of 25 cents a share and increased the size of its share repurchase program by $2.6 billion, to a total of $3.5 billion.

For the three months ending Jan. 29, Kohl’s net income rose 14% to $493 million, or $1.66 a share, from $431 million, or $1.40 a share, in the same period a year ago. Analysts’ average estimates had been for a profit of $1.65 a share in the fourth quarter. Sales rose 6.3% to $6 billion for the three months ended Jan. 29. Same-store sales rose 4.3%.

Comparable-store sales increased 4.3%, a key gauge of a retailer’s health. Gross margin widened slightly to 36.8% from 36.4%. Selling, general and administrative expenses fell to 20.5% of sales, down from 21%.

Kevin Mansell, chairman, president/ceo, attributed the fourth quarter success to “improving our merchandise margins significantly through strong inventory management and successful private and exclusive brand strategies. Expenses were well managed while improving the store experience for our customers.”

‘We Outperformed Our Direct Competition’

Kohl’s reported that its full fiscal 2010 year posted a net income was $1.1 billion, or $3.65 per diluted share, compared to $991 million, or $3.23 per diluted share, for fiscal 2009. Net sales increased 7.1% to $18.4 billion. Comparable store sales increased 4.4% over the prior year.

“We clearly outperformed our direct competition for the year, achieving the highest total sales increase for the year, leading to the largest market share gain,” Mansell said.

2011 Forecast Falls Short of Expectations?

Consumers remain “very interested in value” this year, too, Mansell said, noting that Kohl’s plans to stay focused on “increasing market share.” But the company’s forecast for earnings of $4.05 to $4.25 per share in fiscal 2011 fell short of Wall Street expectations. Analysts’ average estimates are for $4.35.

First quarter 2011 earnings are projected at 68 cents to 73 a share, based on forecasts of a total sales increase of 4% to 6% and a 2% to 4% comparable store sales increase. Analysts’ average estimate is for a 71 cents per share increase in the first quarter.

 

Limited Brands Q4 Income Jumps 27%

Columbus—Limited Brands, which operates Victoria’s Secret and Bath and Body Works, benefitted from consumers apparent return to discretionary spending. The company reported Tuesday that its fourth-quarter net income increased 27%.

Net income was $452.3 million, or $1.36 per share, compared with $356.1million, or $1.08 per share, a year earlier. Excluding gains related to selling stock in the Express clothing chain and to an Express dividend payment, Limited Brands earned $1.26 per share. Analysts’ average estimates expected earnings of $1.24 per share. Revenue rose 13% to $3.46 billion largely driven by a 10% increase in comparable-store sales.

By division, Victoria’s Secret’s same store sales increased 15% and Bath & Body Works grew 6%. More full-price selling, fewer merchandise markdowns, and operating leverage gains drove an operating margin expansion of 150 basis points (to 20.6%) during the quarter.

Optimistic for 2011

For the fiscal year, Limited posted profit of $805 million, nearly double the $448 million profit from fiscal 2009. Total sales approached the $10 billion mark to hit $9.61 billion.

The company said it expects 2011 full-year earnings per share to be between $2.15 and $2.35 per share, including earnings per share of between 26 cents and 31 cents in the first quarter. Analysts’ average estimates call for $2.27 a share profit for 2011 and 30 cents a share for the first quarter.

Limited Brands also raised its February comparable-store sales expectations to the high single-digit percentage range, compared with an earlier estimate of flat to low single digits.

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