Modest Expectations – Q4 Retail Earnings Wrap-Up

While fourth quarter sales were mixed for some retailers, major department stores, luxury retailers, discounters and the home-improvement sector reported strong results.  Retail executives attribute the gains to internal changes and an improving economy.

J. C. Penney Company, Inc., Neiman Marcus, Inc., Home Depot Inc., and Wal-Mart Stores Inc. showed gains in earnings with profit increases of 26% for Wal-Mart, 36% for J.C. Penney, 72% for Home Depot and a staggering 430% for Neiman Marcus.

Dallas-based J.C. Penney reported strong sales, with fourth quarter sales reaching $5.7 billion compared with $5.55 billion from a year ago.  That’s an increase of 2.8% (up 4.5% on a same-store basis).  J.C. Penney attributes its growth to rising sales and success of strategic merchandising initiatives, including the launch of exclusive brands such as Liz Claiborne, and value offered to customers through private brands.

Home Depot also reported an increase in sales.  Fourth quarter sales reached $15.1 billion, up from $14.6 billion in fiscal 2009, a 3.8% gain.   Same store sales increased 3.9% world-wide and 4.8% in the US.  Although not specifically stated as a reason by Home Depot executives, many speculate that their results were helped by the snowstorms around the country.

Fort-Worth-based Radio Shack also saw a jump in sales.  Sales for the fourth quarter increased 3.8% to $1.37 billion. Comparable same-store sales increased 1.3% compared with the 2009 fourth quarter. Radio Shack attributes its increase in sales to success of its wireless business, private brands, and Mobile locations (kiosks) inside Target stores.  Although sales were good for the fourth quarter, Radio Shack is only forecasting revenues to increase in the low-to mid-single-digit percent range in 2011, primarily driven by continued growth in the wireless product platform.

Although Wal-Mart Stores Inc. reported fourth-quarter earnings increase of 27% to $6.06 billion from $4.76 billion in the prior year, their story is not as promising.  Domestic sales fell 0.5% and domestic same store sales fell 1.8%.  This was the seventh quarter in a row where Wal-Mart experienced declining same store sales.  International store sales, however, rose 8.9%.  Wal-Mart executives said, “Some of the pricing and merchandising issues in Wal-Mart ran deeper than we initially expected…” and that a turnaround in domestic sales “will take some time.”  Wal-Mart reduced the number of items it sold, which led customers to shop elsewhere.  That, combined with increasing popularity of dollar stores, is hurting Wal-Mart’s sales.

On the contrary, discount stores like Dollar Tree, Dollar General Corp. and Family Dollar Stores Inc. have continued to experience strong growth as cautious consumers are still seeking bargains.  Dollar Tree’s sales rose 11% to $1.73 billion and same store sales increased 3.9%.

Luxury retailers saw growth too during the fourth quarter.  Dallas-based Neiman Marcus, Inc.’s second quarter earnings rose a staggering 430%, with same stores sales increasing 6%.  Neiman Marcus, along with other high-end retailers, experienced a decline in demand for top-tier products during the recession, but in recent quarters, these retailers are showing that customers are again buying higher-priced merchandise.  In fact, the luxury segment appears to be making a faster comeback than others.

Consumers are spending again, but still shopping carefully, as denoted by the Commerce Department retail numbers for February.  Although the fourth quarter has shown a return to normal profit levels, earnings forecasts show that retailers expect only mild sales growth the rest of the year.

What are your expectations for Q1 earnings numbers?