February 27, 2008 in Business

Target, Macy’s shares bounce despite losses

Joshua Freed Associated Press
Associated Press photo

A shopper walks past Macy’s in New York on Monday. Macy’s says its profit edged up 2.3 percent in the fourth quarter as a tax settlement helped offset weaker-than-expected sales. Associated Press
(Full-size photo)

Winners and losers

Leading retailers’ earnings in the fourth quarter of 2007.

Nordstrom: Down 8.6 percent.

Target: Down 8 percent.

Macy’s: Up 2.3 percent, after tax benefit.

TJX Cos.: Up nearly 47 percent.

MINNEAPOLIS – In a slowing economy, the more upscale the retailer, it seems, the more they’re struggling.

Department store operator Macy’s needed a one-time tax benefit to rescue the fourth-quarter results it released Tuesday. Cheap-chic Target did better, with an 8 percent drop in quarterly earnings. And Wal-Mart, with its strong emphasis on low prices, reported a solid fourth quarter last week.

Other examples: Nordstrom said Monday that profits declined 8.6 percent, while discounter TJX Cos. said last week that its fourth-quarter earnings rose almost 47 percent.

Still, the results from Target and Macy’s looked stronger than they might have given the plunge in consumer confidence reported for February. Investors, perhaps relieved that Target and Macy’s results weren’t worse, sent Target shares up more than 3 percent. Macy’s shares rose 7.1 percent.

With the economy slowing late last year, Target said consumers bought more low-profit items such as paper towels and food. That and markdowns hurt profit margins. Recalls hurt toy sales. And sales of DVDs and music continued their industry-wide dropoff. Chief Financial Officer Doug Scovanner said the company saw a “sharply softer sales trend in the quarter,” made worse since the quarter ending Feb. 2 was one week shorter than last year’s fourth quarter.

Target reacted by cutting hours for store workers, and it also benefited from rising earnings in its credit card operations.

Minneapolis-based Target said earnings fell to $1.03 billion from $1.12 billion last year. Revenue edged up nearly 1 percent to $19.87 billion. Target didn’t provide specific guidance for the year ahead. Scovanner said comparable-store sales are expected to rise 2 percent to 3 percent for the full year. The prediction for better results later this year is based on easier comparisons to the weak end of 2007, he added, not a prediction about an economic rebound by the end of 2008.

Macy’s, meanwhile, said profits edged up 2.3 percent in the fourth quarter as a tax settlement helped offset weaker-than-expected sales.

The operator of department stores – including what used to be Target’s Marshall Field’s chain – said its earnings rose to $750 million in the three months ended Feb. 2, from $733 million a year earlier. But revenue fell 6 percent to $8.59 billion. As recently as November, Macy’s predicted fourth-quarter sales of $8.7 billion to $8.9 billion.

Sales at stores open at least a year, considered a key indicator of a retailer’s success, fell 2 percent, at the low end of the company’s forecast last month.

The Cincinnati-based retailer has struggled with disappointing sales and resistance from shoppers in some markets where the Macy’s name replaced local favorites it absorbed when it bought May. Macy’s announced three weeks ago that it would combine three regional divisions and cut about 2,300 management jobs.

Target, meanwhile, has been under shareholder pressure to bring up its share price. It has been considering selling off some portion of its credit card business, which contributed $137 million in pretax fourth-quarter profit, up from $122 million during the same period last year. Its provision for bad debts jumped 67 percent to $170 million, however.

Scovanner said the review of the credit card business isn’t complete.

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