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UPDATE 2-Wal-Mart keeps 3rd-qtr outlook, Target warns
October 8, 2008 / 12:09 PM / 9 years ago

UPDATE 2-Wal-Mart keeps 3rd-qtr outlook, Target warns

(Recasts with Target results, analysts’ comments, byline)

By Martinne Geller and Nicole Maestri

NEW YORK, Oct 8 (Reuters) - Wal-Mart Stores Inc (WMT.N) said September same-store sales rose in line with its forecast as shoppers flocked to its stores for bargains on necessities.

But rival Target Corp (TGT.N) on Wednesday posted a bigger-than-expected decline as its trendier apparel and home goods sold poorly.

Wal-Mart stood by its third-quarter earnings outlook, while Target warned that profit would be lower than analysts had expected.

But if Target can succeed in its attempts to tout its low prices, analysts said both discounters should outperform competitors this holiday as shoppers turn to the retailers for help stretching budgets amid a deepening economic downturn.

“Generally speaking, when people aren’t spending on large capital investments, they will be spending at places like Target and Wal-Mart,” said Ben Pivar, vice president in the consumer products and retail practice at consulting firm Capgemini. “So the discount retailers are going to be positioned better to survive this crisis.”

Wal-Mart’s low prices have attracted cash-strapped consumers as a U.S. housing slump and credit crunch squeeze household budgets.

While Target created a niche selling inexpensive but trendy clothes and home goods, the strategy hurt its sales in the past year as consumers resist splurging on nonessential items. To improve results, Target is putting a bigger emphasis on the “Pay Less” side of its “Expect More. Pay Less” tagline.

WAL-MART WEATHERS STORMS

Wal-Mart, the world’s largest retailer, said sales at its U.S. stores open at least a year rose 2.4 percent in September. Analysts, on average, were expecting a 2.5 percent increase, according to Thomson Reuters Estimates, while the company had forecast a gain of 2 percent to 3 percent.

Target reported a 3 percent drop, more than double the fall analysts expected.

Standard & Poor’s equity analyst Joseph Agnese upgraded Wal-Mart shares on Wednesday to “strong buy” from “buy,” citing an expectation that the retailer will continue to gain market share as consumers trade down from higher-cost rivals.

Wal-Mart’s September performance was boosted by sales of food and medicine, which helped offset store closures due to hurricanes that hit the United States in the month.

Temporary store closures by hurricanes Gustav, Hanna and Ike reduced same-store sales 0.4 percentage points, Wal-Mart said.

Same-store sales for the five weeks that ended Oct. 3 rose 2 percent at Wal-Mart’s namesake discount stores, while they rose 4.6 percent at its Sam’s Club warehouse division.

Wal-Mart said it still expects third-quarter earnings from continuing operations to range from 73 cents to 76 cents per share. It expects October U.S. same-store sales to rise 1 percent to 2 percent.

Joseph Feldman, a retail analyst with Telsey Advisory Group, said it was positive that Wal-Mart was able to maintain its forecast as other chains including J.C. Penney Co Inc (JCP.N) and Nordstrom Inc (JWN.N) cut their outlooks, and Target warned that profit would miss estimates.

MISSING THE TARGET

Target said on a recorded call that September same-store sales were driven by necessities like medicines and food, while they fell in the areas of clothing and home goods.

“Sales for the month of September were below our expectations, reflecting continued daily volatility,” Target CEO Gregg Steinhafel said.

He added that weak store revenue growth and higher write-off rates in its credit-card business have made it more likely that third-quarter earnings will come in below analysts’ average estimate of 52 cents per share.

Telsey’s Feldman said Target needs to ratchet up its attempts to tout its low prices.

“They’ve talked about emphasizing the ‘pay less’ side of their tagline, and I don’t know that they’ve done that as effectively as we would have hoped to see,” he said.

Wal-Mart shares were up $1.36 at $56.21 on the New York Stock Exchange while Target shares were up $1 cents at $40.86 (Editing by Maureen Bavdek, Brad Dorfman)

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