Big-box stores Target Corp. (NYSE: TGT) and BJ’s Wholesale Club, Inc. (NYSE: BJ) reported better than expected quarterly earnings this morning, but missed on revenue estimates. Target posted EPS of $0.74, higher than estimates of $0.68, while coming in below revenue estimates of $15.61 billion with sales totaling $15.2 billion. BJ’s posted EPS of $0.43, excluding items, on sales of $2.57 billion, compared with expected EPS of $0.36 and expected revenue of $2.64 billion.
Yesterday’s earnings from Wal-Mart Stores, Inc. (NYSE: WMT) and The Home Depot, Inc. (NYSE: HD) reflected the same pattern: a beat on EPS and a miss, even if just barely, on revenue. Costco Wholesale Corp. (NASDAQ: COST), which reported earnings in October, also beat EPS estimates and missed revenue.
With absent sales growth, it’s difficult to imagine how these retailers will continue to show profits. Target’s chairman/president/CEO said the company is “well-positioned” for the coming holiday shopping season, but based that statement on the company’s rewards program that offers customers a 5% rebate on purchases. With gross margins already under pressure, cutting those margins even more doesn’t appear to be the answer.
Home Depot made savings in its operating expenses. Wal-Mart got a lot of help from its international division, but is planning to increase expenses in the current quarter by offering free shipping. BJ’s got a boost from opening six new stores. Costco’s earnings are almost exactly equal to its membership fees. Target’s profit from its credit card division contributed 25% of the company’s quarterly net income. It’s almost as if sales don’t matter, as long as there’s some other profit source.
Target believes that it is looking at the best holiday shopping season in the last three years. Wal-Mart is also expecting to gain sales in its US stores for the first time in six quarters.
BJ’s, unlike Target with its cheerleading statement, raised its EPS guidance for the full fiscal year ending in January from $2.40-$2.50 to $2.48-$2.52.
The most one can say about the retail sector is that it is mixed. Target’s shares are up about +3.8% before noon today, and BJ’s shares are up about +2.75%. Wal-Mart is off about -1% and Home Depot is down more than -1.5%.
