NEW YORK–Some retailers saw third-quarter improvements in what have been soft home businesses while others continue to suffer amid a tough consumer spending environment. While results may have differed, most retailers shared anticipations of a somewhat difficult upcoming holiday sales season.
Wal-Mart reported third-quarter results that exceeded analysts' expectations, reflecting an improvement at U.S. operations and the reinvigoration of its low-price strategy across the store and in home, executives said during a conference call.
The improvement in Wal-Mart's somewhat soft home business includes positive results from its new home pad, now in 15 markets, which will roll out to more stores in 2008.
Wal-Mart's strengthened "price leadership" should give the retailer a leg up during the make-or-break holiday selling season, Lee Scott, president and chief executive officer, said during a conference call.
Wal-Mart's net sales rose 8.8 percent to $90.9 billion from the year-ago period on a 1.5 percent same-store sales gain, which excludes fuel sales.
Net income was $2.8 billion, compared with $2.6 billion a year ago. Earnings during the quarter were impacted positively from $46.5 million in after-tax gains from the sale of real estate properties.
Although home "has not been one of our stronger businesses," J.C. Penney is bullish on the launch of the exclusive American Living home and apparel line from Ralph Lauren next February, the biggest product launch in the company's history, Myron Ullman, chairman and chief executive officer, told investors during the retailer's third-quarter conference call.
The American Living collection will roll out to 600 stores with a major ad push that will launch during the Academy Awards.
In new stores, the brand will be showcased in a shop-within-a-shop concept.
During the quarter, big-ticket home merchandise, such as furniture and window treatments, were soft, while housewares was strong, Ullman said. He added that home has been hit by the weak housing market.
The retailer is upbeat about its new home merchandising team and the opportunity to revive the business, Ullman said.
Despite home's weak showing, "we won't reduce the merchandise [content] or our selling commitment," he said.
For the quarter ended Nov. 3, net income fell 9.1 percent to $261 million. Total net sales slipped 1.1 percent to $4.7 billion, with sales weakening dramatically in September and October due to the weak housing market and tough economic environment, Ullman said.
With November traffic already slower than expected, due to the overall weakening macro-environment, Williams-Sonoma expects the fourth quarter to be challenging. That said, the company saw net revenues increase 5 percent to $895.1 million for the quarter ended Oct. 28. October was one of the retailer's stronger months, executives said during its third-quarter conference call last week.
"We're pleased with these results," said Howard Lester, chairman, which shows how the strength of its brands can "drive business in difficult times," though he added that "we're being ultra-cautious going into the fourth quarter." Comparable-store sales increased, and Pottery Barn, which has been the retailer's Achilles' heel, reported a 0.3 percent growth. Pottery Barn's net revenues also climbed, by 0.8 percent, showing improvement with earlier initiatives, said Laura Alber, president. She added they are cautious for the fourth quarter, though the company is "excited by the early reads of [Pottery Barn's] holiday assortment."
Furniture across all brands continued to be strong, executives said, and represents about 30 percent of sales. Textiles, however, was an area that was soft for the brands. At Pottery Barn, this was particularly seen in bedding, where there is a lot of product in the marketplace, Alber said, as well as in rugs and windows, which is highly promotional. Even West Elm saw softness in bed and bath, though its organic offering is doing well, said Dave DeMattei, president, Emerging Brands. "Across the board, textiles are softer than we'd like," Alber said.
The Home Depot
The Home Depot reported a 27 percent decrease in net income for the third quarter, a 3.3 percent sales decline and cut its forecast for the year, citing continued softness in the housing market.
In the wake of these bottom- and top-line losses, company officials outlined behind-the-scenes changes they hope will strengthen the home improvement giant in the long term.
Recognizing it has lost market share through its own performance, The Home Depot is working to improve its in-stock position and shorten lead times with a distribution pilot underway in Georgia. Its supply-chain overhaul is slated for testing in 2008 in the Canadian stores, with anticipated rollout to the United States thereafter. "Building out our new supply chain will be one of the most important initiatives through the remainder of 2007 and 2008," Frank Blake, chairman and chief executive officer, told analysts. The retailer is also putting additional resources in regional merchandising.
Softness in building materials has impacted The Home Depot's average ticket, which is down 1.5 percent from last year to $57.48. During the quarter, sales were down in all categories except kitchens, which was driven by appliances.
The Home Depot is reworking its underperforming lighting category, which lost market share in the quarter, with the recent appointment of Lisa McClellan, former Expo Design Center merchant, to merchandising vice president of lighting. Leveraging her fashion and design experience from Expo, McClellan is retooling the lighting assortment and simplify the shopping experience for spring 2008, according to Craig Menear, executive vice president of merchandising. -- Barbara Thau, Nancy Meyer, Andrea Lillo and Michael Rudnick