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Retailers Retreat on 3Q Plans

Wal-Mart Raises 3Q Guidance, while Competitors Dim Forecasts

James Mammarella -- Home Textiles Today, October 15, 2007

As September sales results were reported last week, Wall Street was pleased that Wal-Mart felt moved to raise its third-quarter guidance on earnings — even though projections elsewhere tended to tip toward the downside.

Even the biggest retailer on Earth actually saw comp sales come in below expectations — but made up for the shortfall by a massive attack on costs.

"For the first two months of the quarter, we have seen improvement in initial margin and expense leverage at the Wal-Mart Stores division, which is driving this change," said cfo Tom Schoewe.

"We estimate that earnings per share from continuing operations for the third quarter of fiscal year 2008 will change from within our previously stated guidance of $0.62 to $0.65 to a range of $0.66 to $0.69," Schoewe said.

On the flip side, some of Wal-Mart's flashier competitors were compelled to dim forecasts.

"Our comparable store sales growth in September was below our planned range, particularly in apparel," said Bob Ulrich, chairman and ceo of Target Corporation. "As a result, we now believe that our full year EPS will be below $3.60. For reference," he continued, "our prior guidance envisioned roughly equal likelihood of earning slightly more or slightly less than $3.60 for the full year 2007."

The downside dose was stronger at JCPenney, where chairman and ceo Mike Ullman said, "The company now expects earnings for the third quarter to be in the range of $1 to $1.04 per share, compared to the previous guidance of $1.28 per share that had been included in full-year earnings guidance."

Larry Montgomery, Kohl's chairman and ceo, was compelled toward caution: "September sales were affected by weak demand in weather-sensitive businesses such as long bottoms, fleece and sweaters. We expect our third-quarter earnings to be at the low end of our previous earnings guidance of $0.67 to $0.71 per diluted share."

And softlines specialty chain Stein Mart issued a stark warning that its previous projection for a loss of $0.03 to $0.06 per share has now been lowered to the expectation of a loss between $0.15 and $0.18 per share.

In contrast, the two leading off-price operators were satisfied.

Carol Meyrowitz, president and ceo of The TJX Cos., said sales were strong, inventory liquid, and the "marketplace flush with buying opportunities." She stated, "We remain comfortable with our previously anticipated third-quarter earnings per share range from continuing operations of 53 cents to 55 cents."

Rival Ross Stores, pleased with the sales outlook and what it called "favorable gross margin and expense trends," didn't raise but did "fine tune" its projection toward the higher end. Michael Balmuth, vice chairman, president and ceo said, "We are fine-tuning our earnings per share forecast for the 13 weeks ending Nov. 3, 2007 to 35 to 37 cents from our prior range of 33 to 37 cents. This compares to earnings per share for the 2006 third quarter of 31 cents."

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