Mixed Retail Results in 2nd Quarter Don’t Dampen Hope for Fall

While bad weather and markdown pressures hurt retailers’ second-quarter profits, initial earnings results indicated things could have been worse.

Allen Questrom looks to increase Penney’s fashion quotient in certain markets

Allen Questrom looks to increase Penney’s fashion quotient in certain markets.

Photo By WWD Staff

NEW YORK — Stores are happy to have the first half behind them.

Although unseasonable weather and unrelenting markdown pressures took their toll on retailers’ profits during the second quarter, the first smattering of earnings results for the period indicated things could have been worse.

J.C. Penney Co. managed to break even after a year-ago loss despite difficulties at its Eckerd drugstore division, but write-offs for store closures at Lord & Taylor sent May Department Stores deeply into the red. The TJX Cos. was unable to match its year-ago profit performance, but Abercrombie & Fitch managed a double-digit increase in net income despite a drop in comparable-store sales.

A nearly universal theme sounded by stores Tuesday was a feeling that sales at the start of the third quarter had been markedly stronger than those that preceded them, as the dog days of summer arrived along with fall and back-to-school shipments.

Tax rebates and a careful balance between basics and fashion have J.C. Penney Co. feeling bullish about the back-to-school shopping season after the firm trimmed its second-quarter loss beyond Wall Street’s forecast.

While Penney’s department stores and catalog business more than doubled its operating profits, earnings erosion at Eckerd drugstores dragged down overall results.

For the three months ended July 26, the Plano, Tex.-based national chain said bottom-line results broke even in dollars and registered a loss of 2 cents a diluted share. That beat the Wall Street consensus estimate by 3 cents, and was an improvement over last year’s loss of $6 million, or 5 cents.

Operating income at the department stores and catalog business shot up 131.8 percent to $51 million from $22 million a year ago, but the Eckerd division took a chunk of that back, as operating profits plunged by more than a quarter, or 26 percent, to $54 million from $73 million last year.

Consolidated sales ticked up 1.6 percent to $7.31 billion from $7.2 billion a year ago. Department stores and catalog sales rose 1 percent to $3.66 billion versus $3.62 billion, which was outpaced by net sales at Eckerd where revenues grew 2.3 percent to $3.66 billion from $3.58 billion. Comparable-store sales, however, were another matter, as a 2.1 percent bump at the department stores was partially offset by a 0.8 percent drop at the drugstore chain.
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