Retailers Kick Off Earnings Parade

Includes: HD, M, ODP, WMT
by: RetailSails

Earnings season is in full swing, as four major retailers -- including three of America’s top 15 largest retailers -- reported fourth quarter and fiscal year results this morning. Expectations were running high as consumers have regained confidence, but worries about inflation and persistently high unemployment will be the focus for the rest of the year.

Consumer Confidence: The morning got off to a good start, as The Conference Board said consumer confidence jumped in February to its highest level in three years. The index rose to 70.4, up from 64.8 in January. The Present Situation Index improved to 33.4 in February from 31.1, while the Expectations Index increased to 95.1 from 87.3 last month.

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The Conference Board Consumer Confidence Index

Lynn Franco, Director of The Conference Board Consumer Research Center, said:

The Consumer Confidence Index is now at a three-year high (Feb. 2008, 76.4), due to growing optimism about the short-term future. Consumers’ assessment of current business and labor market conditions has improved moderately, but still remains rather weak. Looking ahead, consumers are more positive about the economy and their income prospects, but feel somewhat mixed about employment conditions.

Walmart (NYSE:WMT): The world’s largest retailer reported results that beat analyst estimates, but struggles at its North American stores continued. Total sales in the fourth quarter increased 2.5% to $115.6 billion, but U.S. same-store sales dropped 0.8% (the seventh straight quarterly decline), which consisted of a 1.8% comparable sales drop at Walmart and a comparable sales gain of 4.5% at Sam’s Club. Net Income jumped 27% to $6.06 billion and Diluted EPS rose 36% to $1.70 for the quarter, while adjusted EPS of $1.34 beat the consensus estimate of $1.31.

Walmart - Quarterly Sales Growth

For the full fiscal year 2011, net sales increased 3.4% to $418.9 billion and U.S. same-store sales declined 0.3% on top of a 0.7% drop in 2009. Sales at Walmart U.S. rose 3.1% and comparables were down 1.6%; sales at Sam’s Club rose 12.9% and comparable sales rose 3.7%; and International Sales rose 14.4%. Net Income increased 14% to $16.4 billion and Diluted EPS rose 21% to $4.47.

“We are pleased with Walmart’s strong earnings performance for both the fourth quarter and the full year across our three operating segments. At the same time, we are disappointed by Walmart U.S. fourth quarter sales,” said Mike Duke, Wal-Mart Stores, Inc. president and chief executive officer. “Some of the pricing and merchandising issues in Walmart ran deeper than we initially expected, and they require a response that will take time to see results,”

Home Depot (NYSE:HD): The world’s largest home improvement retailer reported earnings that exceeded analyst estimates and its first annual sales increase since 2006. Home Depot said net sales increased 3.8% in the fourth quarter to $15.1 billion and same-store sales rose 3.9%, the fifth straight gain after 14 consecutive quarterly declines. Net income jumped 72% to $587 million, while Diluted EPS rose 80% to $0.36, beating the $0.31 consensus estimate.

Home Depot - Annual Sales Growth

For the full fiscal year 2010, net sales increased 2.8% to $68.0 billion and same-store sales rose 2.9% (the first gain since 2005). Net income increased 25% to $5.84 billion and Diluted EPS rose 28% to $2.01.

“In 2010, we continued to invest in our business and made solid progress against our key initiatives,” said Frank Blake, chairman/CEO. “We completed the rollout of our Rapid Deployment Centers, an important part of our distribution network; we saw year-over-year improvement in customer service ratings; and we continued progress on our merchandising transformation. Our actions, coupled with an improving economy, resulted in positive sales growth for the year, the first time since 2006.”

Macy’s (NYSE:M): America’s second-largest department store chain beat analyst estimates and reported its first annual same-store sales gain since 2006. Macy’s said total sales in the fourth quarter increased 5.4% to $8.27 billion and same-store sales rose 4.3%, the fourth straight quarterly gain after 11 consecutive declines. Net income jumped 50% to $667 million and Diluted EPS rose 48% to $1.55, while the adjusted EPS of $1.59 beat consensus analyst estimates of $1.52 per share.


Total sales for the full fiscal year increased 6.4% to $25.0 billion and same-store sales rose 4.6%, the first gain since 2006 and compared to a 5.3% drop in 2009. Net income increased 157% to $847 million and Diluted EPS was up 154% to $1.98. Online sales jumped 28.7% in 2010 and we estimate e-commerce sales of more than $1.6 billion for the year.

“Fiscal 2010 was a very successful year for Macy’s and Bloomingdale’s based on a combination of strong sales, steady margins and continued expense discipline. Our operating income rose 32 percent over the previous year, factoring out various items,” said Terry J. Lundgren, chairman, president and chief executive officer of Macy’s, Inc. “A successful holiday selling period in 2010 reinforced the effectiveness of our talented team, our unique organizational structure and the process that has transformed Macy’s, Inc. to a culture of growth. We believe that our company is now on a clear path that will lead to continued growth in sales, earnings and cash flow in the years ahead.”

Office Depot (NYSE:ODP): The global office supplies retailer narrowed its loss and beat analyst estimates in the fourth quarter, but annual sales dropped for the third straight year. Net sales declined 3.4% in the quarter to $2.96 billion: North American Retail sales dropped 2% and same-store sales decreased 1%, North American Business Solutions sales fell 3% and International sales declined 5% (flat in local currencies). Office Depot said its net loss improved to $57.8 million (-$0.21 Diluted EPS) from a loss of $76.7 million (-$0.28 Diluted EPS) in the year-ago period.

Office Depot - Annual Sales Growth

For the full year, total sales declined 4.2% to $11.6 billion: North American Retail sales dropped 3% and same-store sales decreased 1%, North American Business Solutions sales fell 6% and International sales declined 5% (-2% in local currencies). The net loss was -$2.2 million (-$0.01 Diluted EPS) compared to a net loss of $627 million (-$2.30 Diluted EPS) in 2009.

“Our fourth quarter operating results were stronger than we anticipated, excluding the charges,” said Neil Austrian, Office Depot’s Interim Chairman and Chief Executive Officer. “We are taking the necessary steps to improve the future operating performance of this Company.”

While all four of the above retailers beat analyst estimates and showed substantial improvements last year, things will not be so easy going forward. Cost-cutting and inventory management played a large part in margin improvements, and inflation is likely to start eating into gains as raw material and labor costs are skyrocketing. We will be analyzing price increases and their effect on margins in more detail as we go through conference calls.

RadioShack (NYSE:RSH) will be reporting after the close today, and tomorrow Chico’s (NYSE:CHS), Dollar Tree (NASDAQ:DLTR), Limited Brands (LTD), Lowe’s (NYSE:LOW), Saks (NYSE:SKS) and TJX are all scheduled to report earnings.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.