Retail stores Wal-Mart Stores, Inc. (WMT) and The Home Depot, Inc. (HD) released their earnings reports today before market open, and results were closely monitored by investors. Both companies, due to their size and scope, are considered important bellwethers for the broader economy, and their guidance could be a strong indication of what to expect for the retail sector for the all-important holiday shopping season.
Sales Growth Wal-marred by Profit Slip
Wal-Mart reported a 2.9 percent year-over-year drop in Q3 profits this morning, prompting its stock to drop over 2.5 percent in early trading. However, the bigger story may be that the Arkansas-based retail mega-chain posted the first increase in revenue in more than two years. Wal-Mart reported profits of $3.3 billion, down from last year's Q3 profit of $3.43 billion. Earnings per share was $0.97 from $0.95 last year because of a $15 billion buyback plan that was enacted in June. Analysts had predicted an EPS of $0.98, so the markets reacted poorly to the quarterly report, but Wal-Mart also beat expectations of $108.86 billion in net revenue by posting a figure of $109.5 billion. Wal-Mart also posted higher sales numbers, with 5.7 percent improvements from their Sam's Club stores, leading them to surpass street expectations of 4.9 percent. Sales at stores open at least a year, known as "same-store sales," were up 1.3 percent ahead of analyst predictions of 0.7 percent.
CEO Michael T. Duke, who has been trying to attract customers back to stores by slashing prices and returning products that were previously dropped to the shelves, was optimistic during a conference call to announce earnings. "Every business segment is stronger than it was a year ago and we delivered solid earnings growth," he said. "I'm really pleased with our top line performance and our momentum going into the fourth quarter. Our overall performance reflects the Walmart strategy of driving the productivity loop, leveraging expenses and investing in price leadership. ... Looking ahead, we will be an even stronger company a year from now. These plans also will lead to greater shareholder value."
Store's Q3 was Anything but Homely
Home Depot reported a strong quarter, posting an increase in net income of 12 percent, driven by net sales that were up 4.4 percent and same-store sales up by 4.2 percent. Earnings were at $934 million, or $0.60 per share, beating expectations of $0.58 a share in a Reuters poll. Home Depot's solid sales numbers failed to boost share prices, which actually dropped by a third of a percent in early trading, but they did seem to serve as further evidence that Home Depot continues to outpace rival Lowe's (LOW), which released earnings yesterday. Both stores appear to have benefited from increased sales related to Hurricane Irene, but Home Depot was more effective at cutting costs and streamlining their operations.
It's Beginning to Look a Lot Like Christmas
With the all important Holiday season coming up, the retail sector has shown some promising sales numbers that could mean good things for the sector and the American economy. As the economy on the whole continues to show signs of a gradual recovery, sales for Wal-Mart and Home Depot can be indicators of what is to come. Home Depot's sales are closely connected to the housing market, while the predominantly low-income shoppers at Wal-Mart have been hit disproportionately hard by the recession. The Commerce Department reported today that retail sales grew 0.5 percent in October, higher than analysts had previous predicted, news that could point to a strong Holiday season for retailers.
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