WalMart's Financial Forecast Leaves Investors Cold
Tuesday, February 21, 2006SUSIE GHARIB: Disappointing forecasts from two major retailers today pressured retail stocks. Both Wal-Mart and Federated department stores issued earnings guidance that came in below Wall Street estimates and their stock prices fell. Those forecasts overshadowed strong quarterly results. Erika Miller has details.
ERIKA MILLER, NIGHTLY BUSINESS REPORT CORRESPONDENT: The world`s largest retailer dismayed investors by issuing a lukewarm profit forecast. Wal-Mart predicts earnings in the current fiscal year will be $2.95 a share, at most. That was well below Wall Street`s estimate. But some analysts believe the company is being overly conservative.
BILL DREHER, RETAIL ANALYST, DEUTSCHE BANK: This is an investment year for the company. They`ve evolved the management and really been able to beef that up. They`ve been able to improve the store base, improve their merchandise offering as well as focus on reducing cost.
MILLER: Deutsche Bank owns Wal-Mart shares. It also does investment banking and other business with Wal-Mart. Wal-Mart`s forecast overshadowed its strong fourth quarter profits of $0.84 a share. That beat the $0.75 earned last year, as well as the Street estimate.
Federated, parent of Macy`s, also reported better than expected fourth quarter earnings. The department store chain earned $2.74 a share, excluding charges. Last year, Federated earned $2.55 a share. But investors were disappointed the company did not raise its guidance for the current fiscal year. Federated says earnings will be difficult to predict amid store closings and systems integrations in its merger with May department stores. Still some analysts still see more than 40 percent upside for the stock. DREHER: Clearly, we have integration risk associated with this. But I think Federated management is one of the best management teams within the department store sector and they`ve also done this type of consolidation on their own divisions over the past few years.
MILLER: Deutsche Bank owns Federated stock. It also does investment banking and other business with the company. Home Depot reported surprisingly strong fourth quarter profits, on strong sales across all divisions. It earned $60 a share, compared to $47 a year ago. The company still sees earnings per share growth of 10 to 14 percent this fiscal year. Analyst Donald Trott recommends buying the stock and owns it personally.
DONALD TROTT, RETAIL ANALYST, JEFFRIES & COMPANY: We have a buy on the stock. Our price target is $50. The stock is now approximately $42. So there`s still an upside in our judgment of about 20 percent or so.
MILLER: Experts say there`s one conclusion to draw from retailers` earnings today. Consumer spending remains healthy. That`s crucial, because it`s the main driver of economic growth. Erika Miller, NIGHTLY BUSINESS REPORT, New York.
