By Stephanie Clifford
For two major retailers reporting quarterly results on Tuesday consumers appeared to be holding back.
Steeper price-slashing did not lure customers into spending more at Wal-Mart while shoppers at Home Depot spent less and put off big home improvement projects or big-ticket items like appliances.
Both Wal-Mart Stores and Home Depot posted second-quarter profits on Tuesday that beat analyst estimates and both slightly raised their full-year earnings guidance for the year. Yet their results suggested that American consumers were not spending as much as had been expected.
Both of them managed to get to earnings through something besides sales" said David Strasser an analyst at Janney Capital Markets. I think things are getting worse not better for consumers."
Meanwhile the luxury department store Saks reported a second-quarter loss that was lower than anticipated because it sold more items at full price.
Wal-Mart the worlds largest retailer said that its strategy of aggressive discounts had not worked as well as it had hoped. Sales at stores open at least a year in the United States a crucial indicator known as same-store sales fell for the fifth consecutive quarter. That steady decline means those stores are in worse shape than they were at the heart of the recession.
Wal-Mart said that the spate of discouraging news prompted it to rethink strategies that it had tried to persuade customers to begin spending again including deep price cuts.
Net income at Wal-Mart rose 3.6 percent to $3.6 billion or 97 cents a share from $3.47 billion or 89 cents a share in the second quarter a year ago. That beat the 96 cents a share forecast by analysts surveyed by Thomson Reuters.
Even though we had some fairly dramatic price reductions those reductions werent enough to drive the traffic we had hoped for" the chief financial officer Thomas M. Schoewe said in a conference call. The customers under pressure and thats the main reason why the rollbacks didnt work as well as we had hoped."
Spending patterns at Wal-Mart suggest its customers have been hit particularly hard by the recession. Mr. Schoewe said the company saw spending that moved in tandem with paycheck cycles with customers buying more as soon as their paychecks were cashed and little as those paychecks ran out. Mr. Strasser of Janney said that Wal-Marts shifting strategies indicated the retail giant was a little bit lost" in navigating the economic downturn. Theyre operating their business quite frankly not very well at the moment" he said.
The company is putting some items it had cut back into stock after customers expressed frustration at losing those options. And at about two-thirds of its stores in the United States it is adding promotional merchandise back into the middle and sides of its main aisles which it had cleared in an effort to declutter the stores.
Sales at Wal-Mart rose about 2.8 percent to $103 billion. Analysts surveyed by Thomson Reuters had expected $105.3 billion. The retailer raised its full-year earnings estimates to a range of $3.95 to $4.05 a share up from $3.90 to $4.00.
Over all net sales for the quarter increased 2.8 percent from a year earlier driven by international growth.
At Home Depot the largest home improvement retailer plans for a rebound went a bit off course as the economy faltered. The company has lowered its sales forecast growth for the year to 2.6 percent from 3.5 percent.
Customers are looking for value" said Carol B. Tom chief financial officer and executive vice president of corporate services in an interview. She said that although the company expected store visits to be up in the second half it did not expect them to be spending much more per visit.
Home Depot reported that its earnings rose 6.8 percent from the second quarter a year ago to $1.19 billion or 72 cents a share mostly because of cost-cutting and slightly more foot traffic in stores.
Analysts had forecast earnings of 71 cents a share. Home Depot raised its earnings guidance for the year to $1.90 a share from $1.88 but lowered its sales forecast reflecting a weaker-than-expected recovery.
Home Depot began to see a slight improvement from last year in same-store sales in the United States which increased 1 percent from a year ago the third consecutive quarterly increase. At Saks which had sold many of its luxury offerings at deep discounts in late 2008 and early 2009 the company decided to stock fewer items to get consumers buying them at full price again. Sakss loss in the quarter was $32.2 million or 21 cents a share an improvement from the $54.5 million it had lost a year earlier. Analysts surveyed by Thomson Reuters had expected a loss of 17 cents a share.
Its sales increased 5.1 percent to $593 million and same-store sales increased 4.6 percent from a year earlier.
Weve seen a substantial increase in our full-price selling" the chairman and chief Stephen I. Sadove said in an interview. If they know theres only two size 5 shoes and two size 7 shoes left and you better buy it or there may not be any more available it starts training behavior that if you wait for it to go on sale theres a good chance it may notbe there."
Saks has also been asking designers to offer good-better-best" products to meet shifting spending habits so even a high-end brand would offer a range of prices. A large number of thebest designers have been very proactive in offering within their brand good-better-best price points" Mr. Sadove said.
Saks said it would close Saks Fifth Avenue stores in Mission Viejo Calif. and Plano Tex.; in July it closed three other stores.
