Walmart & Target Hit The Mark In The 4th Quarter
Thursday, February 17, 2005SUSIE GHARIB: On Wall Street today, concerns about higher interest rates overshadowed good news from the nation`s two largest retailers. The Dow fell 80 points and the NASDAQ shed 26. But shares of Wal-Mart and Target rose today, after both reported double digit quarterly earnings growth. Erika Miller reports.
ERIKA MILLER, NIGHTLY BUSINESS REPORT CORRESPONDENT: Wal-Mart and Target reported solid fourth quarter earnings, but for different reasons. At Wal-Mart, profit growth was driven by margin expansion, as the chain offered fewer holiday markdowns. The world`s largest retailer earned $0.75 a share, a penny better than expected and up from $0.63 a year ago.
BILL OREHER, RETAIL ANALYST, DEUTSCHE BANK: Very strong results reflected them dealing with a very difficult sales environment, showing gross margin expansion because of great global sourcing opportunities.
MILLER: Deutsche Bank owns more than 1 percent of Wal-Mart shares and it does investment banking and other business with the chain. Target, on the other hand, focused on bringing more customers into its stores by offering trendier merchandise like Isaac Mizrahi clothing. The nation`s second largest retailer earned $0.90 a share, compared to $0.80 a year ago. That was also a penny better than expected. Those results exclude the sale of Marshall Fields and Mervyn`s department store chains. Target`s strategy of offering exclusive merchandise helped lift sales at stores open at least a year. For the quarter, same store sales rocketed 5.4 percent, compared to just 1.5 percent for Wal-Mart. Wal-Mart expects business to pick up in the coming year, as an improving economy encourages lower income customers to boost spending. Analysts say Target is fortunate to have a more affluent customer base.
EMME KOZLOFF, RETAIL ANALYST, SANFORD C. BERNSTEIN: They are higher income. They have fancier houses. They drive nicer cars. They have more education. They pool from a different demographic and that makes a huge difference. And in a time like this, where the low end is really under pressure, Target wins.
MILLER: Bernstein has done business with Target over the past year. Investors seem more optimistic about Wal-Mart`s prospect than Target`s. Wal-Mart stock is trading near the low end of its 52-week range, while Target shares are at the upper end of their range. And Wall Street analysts are confident that Target will continue to steal market share away from Wal-Mart. As a result, they expect earnings per share to grow about 23 percent at Target this year, compared to just 13 percent at Wal-Mart. Erika Miller, NIGHTLY BUSINESS REPORT, New York.
