USA: Discount retail: a good place to be in a market full of misses - COMMENT (Members)
J.C. Penney and Wal-Mart have reported impressive turnaround gains for Q3. Both chains controlled costs and used low prices to attract shoppers in the slowing economy. By improving the quality of basic merchandise, lowering margins, and counting on consumers' need to purchase general commodities, discount retailers are proving it is possible to meet performance targets despite the recession's effects.
Number one retailer Wal-Mart has reported an 8.2% rise in Q3 income, while J.C. Penney's turnaround efforts have helped generate a $31 million profit for the quarter, compared with a $30 million loss for Q3 2000.
The chains took different approaches to keep earnings afloat in the slowing economy: Wal-Mart added stores and cut prices to take customers from rivals, while J.C. Penney revamped merchandise. Stocks in each of these retailers have performed better this year than the Standard & Poor's 500 Index.
Wal-Mart shares fell 58 cents to $55 after the company said it probably would meet, not beat, Q4 profit forecasts. Nonetheless, net income for the quarter ended October 31 rose to $1.48 billion, or 33 cents a share, from $1.37 billion, or 31 cents, a year ago. An expanded selection of groceries and steeper-than-usual discounts helped Wal-Mart increase sales by 15% to $52.7 billion. Sales at stores open at least a year rose 6.7%, outpacing the
industry's composite gain each month of the quarter.
Stock in J.C. Penney rose $1.50 to $25.25, with net income of 9 cents a share, matching forecasts. The year-ago loss was 30 cents. Sales in the quarter ended October 27 rose 2.5% to $7.73 billion. The key to the company's turnaround is that it has improved merchandising and provided customers with greater selection at prices suited to the economy.
Lower margins on staples and basic commodities along with the discounts on other goods dragged gross margins down, as did the increased costs of utilities, insurance, store maintenance and employee provisions. This is representative of the new economy the US faces in such extreme times of uncertainty
However, the retail chains' results show that money can be made as long as both the economy and customer needs are addressed in a strategic manner. It is the discount and department store side of the US retail business that has some real momentum in taking on the challenges of recession.
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Companies: Wal-Mart Stores
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