Discounter Target Corp posted uninspiring results while BJ’s Wholesale Club Inc missed Wall Street profit estimates and cut its full-year forecast, sending shares in both companies lower.
A slow economic recovery has put pressure on retailers. After slashing costs and jobs during the depths of the recession, some are struggling to shore up profits as sales remain sluggish.
Target’s quarterly profit met Wall Street expectations, helped by cost cuts and strength in its credit card business.
But the chain was unable to match the performance of much larger rival Wal-Mart Stores Inc., whose results came in well ahead of analyst forecasts.
Target’s gross margins were about flat despite apparel sales that were stronger than Wal-Mart’s. The company also expanded sales of fresh foods, which carry lower margins.
“Over time, that gross margin will come down,” Wall Street Strategies analyst Brian Sozzi said.
But he also noted that Target’s inventory was down from a year earlier, while Wal-Mart’s rose, and that analysts’ expectations for Target had risen more than Wal-Mart’s ahead of the earnings reports.
“With softer than planned sales, and expectations high, an in-line earnings quarter may not be such a doom and gloom occurrence,” Sozzi said.
As the U.S. economy pulled out of recession, Target has been able to attract customers away from Wal-Mart with apparel and home furnishings.
Target shares were down 2.4 percent, or $1.21, at $49.72, while BJ’s shares were down 3.7 percent, of $1.61, at $41.61
Target said profit rose to $679 million, or 92 cents a share, in the second quarter, meeting analysts’ average estimate, according to Thomson Reuters I/B/E/S.
Earlier this month, Target reported sales of $15.13 billion for the quarter at its retail business, up 3.8 percent from a year earlier. Sales at stores open at least a year rose 1.7 percent, below the company’s forecast for an increase of 2 percent to 4 percent.
Total revenue, which includes credit card revenue, rose 3.1 percent to $15.32 billion.
BJ’s, the No. 3 U.S. warehouse club operator, said profit was $35.8 million, or 67 cents a share, in the second quarter, well below the 73 cents a share expected by Wall Street.
It cut its full-year earnings forecast to a range of $2.40 to $2.50 a share, compared with analysts’ average estimate at $2.67 a share.
The weak forecast and disappointing earnings come as BJ’s faces pressure from a private equity investor who thinks the company’s shares are undervalued.
In July, a fund run by private equity firm Leonard Green & Partners said it had taken a 9.5 percent stake in BJ’s and that it might propose taking the company private.
The company expects full-year same-store merchandise sales to rise 2.5 percent to 4.5 percent, down for its previous forecast of 2.7 percent to 4.7 percent.
