Do Investors Love or Hate These 5 Retailers After Earnings?

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According to the Commerce Department, U.S. retail sales increased 0.4 percent in January.  Nine of the 13 categories measured showed gains last month, led by a 2 percent jump at general merchandise stores, including department stores.  However, today’s release of big name retailers shows the retail picture is still cloudy, and rising costs are affecting companies.

On Tuesday, Wal-Mart Stores Inc. (NYSE:WMT), the world’s largest retailer, reported disappointing fourth quarter results.  Net income fell nearly 15 percent from the prior year to $5.16 billion ($1.50 per share).  Revenue increased 6 percent to $123.17 billion, but analysts were expecting $124.25 billion.  “Our price leadership is making a difference across the United States, as many families are settling into a new normal. Core customers remain cautious about their finances, and they rely on Walmart’s EDLP promise to help them manage through today’s economic challenges,” said Mike Duke, Wal-Mart Stores Inc. president and chief executive officer.  Although the company beat estimates, rising costs continue to shrink margins.  Costs increased 6.2 percent to shrink gross margins to 24.8 percent from the year earlier quarter.

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Another retailer struggling in the current environment is RadioShack Corp. (NYSE:RSH).  The consumer electronics retailer announced a 79 percent drop in fourth quarter earnings from a year earlier.  The company earned $11.9 million (12 cents per share), inline with estimates.  However, net income has dropped 57.2 percent year-over-year on average across the last five quarters.  Jim Gooch, president and chief executive officer of RadioShack Corp., said, “The final results for our fourth quarter are in line with the preliminary range we issued in January. Despite our gross margin challenges, we have a strong balance sheet, are making progress in our mobility business, and expect to advance our business improvement initiatives in 2012.”  Shares dropped more than 7 percent on Tuesday after the results.

Both Macy’s Inc. (NYSE:M) and Saks Inc. (NYSE:SKS) managed to impress the street with their fourth quarter results.  Macy’s net income increased 12 percent, while Saks Incorporated reported a 48 percent surge, compared to the same quarter a year earlier.  Stephen Sadove, Chief Executive Officer of Saks Inc. said, “I am extremely pleased with our improved operating performance for both the fourth quarter and the fiscal year. Our comparable store sales rose 7.7 percent in the fourth quarter, in line with our expectations and on top of an 8.4 percent comparable store sales increase in last year’s fourth quarter. For the full fiscal year, our comparable store sales rose 9.5 percent, among the best in retail.”  Investors welcomed results from both companies as Macy’s Inc. and Saks Inc. jumped more than 4 percent.

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One of the biggest surprises on Wall Street came from Home Depot Inc. (NYSE:HD).  Despite a weak housing market, net income for the home improvement company surged 32 percent to $774 million (50 cents per share), compared to $587 million (36 cents per share) a year earlier.  “We had a strong finish to 2011, and with favorable weather, our business delivered results that exceeded our expectations,” said Frank Blake, chairman & CEO. “I’d like to thank our associates for their hard work and dedication.”  The company has now seen its net income increase for three consecutive quarters. In the third quarter, net income rose 12 percent and in the second quarter, the figure rose 14.3 percent.  Analyst David Strasser from Janney Capital Markets also explained that warmer temperatures across the country helped same-store sales increase by 2 to 2.5 percentage points.  Home Depot Inc. shares jumped more than 1 percent on the news.

Investors Insights:

Wal-Mart Working on a Comeback.
8 Highly Active Stocks: Wal-Mart Drops 3%, While Macy’s and Home Depot Jump After Earnings.
Kraft Earnings: Breaking Up is Expensive.

To contact the reporter on this story: Eric McWhinnie at staff.writers@wallstcheatsheet.com

To contact the editor responsible for this story: Damien Hoffman at editors@wallstcheatsheet.com

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