Target Beats Net Estimates; Wal-Mart Misses on Sales

Target posted a larger first-quarter profit gain than rival Wal-Mart Stores, which missed analysts’ estimates as unfashionable apparel and high gasoline prices hurt sales. Shares of Wal-Mart had their biggest decline in more than five months yesterday.Net income at Target, America’s no. 2 discounter, climbed 15% to $494 million, beating estimates. Wal-Mart, the world’s largest retailer, said yesterday it may miss its annual profit forecast after earnings in the quarter rose 14% to $2.46 billion.Target outperformed Wal-Mart partly because it offers more fashionable and profitable merchandise, such as Isaac Mizrahi apparel and Bella home goods. Wal-Mart shoppers have a lower average income and were hurt more by the record high gasoline prices in the quarter.“Target is clearly out-executing Wal-Mart at this point,” said Todd Jones of Philadelphia-based PNC Advisors, which manages $50 billion including Wal-Mart shares. “Apparel is probably the biggest differential.”Excluding gains from a tax benefit and favorable legal developments, Bentonville, Ark.-based Wal-Mart earned 55 cents a share, 1 cent less than its forecast of 56 cents to 58 cents. Minneapolis-based Target reported net income of 55 cents a share. It was expected to earn 53 cents, the average estimate of 24 analysts surveyed by Thomson Financial.Sales growth at Target also beat Wal-Mart’s. Target’s sales rose 13% to $11.5 billion compared with a 9.5% increase to $70.9 billion at Wal-Mart, the smallest in nine quarters. Target’s same-store sales jumped 6.2% in contrast to its competitor’s 2.9% rise.Target’s gross margin, or the percentage of sales left after subtracting the cost of goods sold, widened to 34.16% from 33.51%, helped by the sale of private-label goods. Wal-Mart’s margin widened to 23.04% from 22.84% a year ago.Shares of Wal-Mart fell 95 cents, or 1.95%, to $47.65 in New York Stock Exchange composite trading. Before yesterday, they had dropped 11% in the past year compared with an 8.8% gain for Target. Shares of Target rose $1.08, or 2.3%, to $49.28.Target earned $432 million, or 47 cents, a year earlier. The current quarter earnings per share should be about 53 cents, the midpoint of the range of analysts’ estimates, Chief Financial Officer Douglas Scovanner said.Target benefits from its customers having an average income about $20,000 more than Wal-Mart shoppers, Jones said.“Target has opportunities to merchandise to a somewhat higher-income consumer,” said Patrick McKeever, an analyst at SunTrust Robinson Humphrey in Atlanta, who rates Target shares a buy. “They’re hard to beat.”CEO Robert Ulrich, 62, has been adding multiple private brands in clothing and house wares to draw shoppers of different ages and incomes.“You have definite differences” between Target brands like Waverly and Simply Shabby Chic in home goods, said Mandy Putnam, an analyst at Retail Forward, a Columbus, Ohio, consulting company. “They just do a much better job of targeting to different segments of the population” than Wal-Mart.Wal-Mart’s net income rose to 58 cents a share compared with $2.17 billion, or 50 cents, a year earlier.The retailer’s annual forecast of $2.70 to $2.74 “is still possible but far more difficult given our current outlook for the second quarter,” Chief Financial Officer Thomas Schoewe said on a recorded message. The retailer expects to earn 63 cents to 67 cents in the second quarter.Most shoppers, or 69% of respondents in an April survey by Prudential Equity Group LLC, go to Wal-Mart for the groceries while only 26% buy apparel because of “poor presentation and a lack of fashion.”“Wal-Mart is flat-footed with regard to trend identification and item merchandising,” said St. Louis-based A.G. Edwards analyst Bob Buchanan, who downgraded the stock to hold from buy last month.CEO H. Lee Scott, 56, is fighting back with the April debut of the higher priced Home Trends Select line of bedding and bath products in more than 1,000 stores.“I’m pleased with the progress we’ve made in merchandising,” Mr. Scott said on the recorded message. “We’re improving our product selection and depth at the mid and premium price points.”Wal-Mart’s operating, selling, general, and administrative expenses rose to 18.57% of sales from 18.33%. The company had higher fuel, payroll, insurance, and maintenance costs, Mr. Schoewe said.Record gasoline prices crimped consumer spending at discount stores in the quarter. Prices reached $2.28 a gallon April 11, according to AAA, and prices have been about 15% higher than last year.Both Target and Wal-Mart beat analysts’ estimates in three of the prior four quarters. Of 28 analysts tracked by Bloomberg, 13 rate Target shares a buy, 14 a hold, and one says sell. Among Wal-Mart analysts, 15 rate the shares a buy, nine say hold, and two say sell.

Target Beats Net Estimates; Wal-Mart Misses on Sales

Target Beats Net Estimates; Wal-Mart Misses on Sales

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