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Wal-Mart Stores Inc. was among the retailers kicking off the first-quarter earnings season Tuesday, as were J.C. Penney Co., The May Department Stores Co. and TJX Cos. While the world’s largest company, unlike its competitors, was able to boast of double-digit earnings growth and a high-single-digit sales increase, it sent a cautionary chill through the apparel markets with its discussion of rising stock levels and the potential for increased promotional pressures going forward.
With sales somewhat slower than expected, the firm’s total inventories were up 13.4 percent at the end of the quarter, while comp-store inventories in the U.S. were up by a percentage in the mid-single digits. On a morning conference call to discuss the results, vice chairman Thomas Coughlin said the majority of the increase related to summer seasonal items and apparel.
“This performance in inventory is not acceptable and we are taking all the steps that we feel are appropriate to bring inventory back in line,” he said. “The increase resulted from lower-than-anticipated sales for the total company during the quarter combined with the high inventory levels that we brought into the current fiscal year.”
Qualifying these observations, he pointed out, “The quality of the merchandise is good, it’s just that the quantity that we have right now is high. Much may depend on achieving more seasonal weather over the next several weeks. Further, industry-wide promotions aimed at apparel clearance in particular may impact our margins. We do have some exposures to markdowns.”
The war in Iraq, a late Easter and cool weather hardly whetted shoppers’ appetites for apparel, but neither have the end of hostilities and, at least according to the calendar, the arrival of spring. Apparently, stocks nudged upward at Wal-Mart and other stores despite their enhanced ability, through technology, to monitor and manage inventories and spot accumulations of excess or dated goods faster than ever.
U.S. Bancorp Piper Jaffray analyst Jeffrey Klinefelter said Wal-Mart’s own need to clear inventory “will probably put pressure on the value chains.” He added, though, that “the damage will probably be mitigated somewhat because Wal-Mart is still not a true destination for fashion.