By Kevin McCoy and Tim Mullaney | USA Today
Major U.S. retailers gave investors at least a little reason for financial optimism in closely watched earnings reports Tuesday.
But the news was tempered by reports of a continuing difficult sales climate — and with wider losses and plunging stock prices at bookseller Barnes & Noble.
The range of results from strong to weak reflect the mixed data in the government's reports on retail sales in recent months, said Chris Christopher, director of consumer economics at IHS Global Insight. People living paycheck to paycheck are watching their spending carefully, which is showing up in weaker results for stores where they shop, but retailers who cater to more affluent customers are doing well.
Upscale retailer Nordstrom last week reported a 4.4% increase in same-store sales for the second quarter while Wal-Mart's same-store sales were down 0.3%.
``You definitely see a bifurcation,'' Christopher said. ``I know consumers are not using the credit cards as much. There's a cautiousness in the American consumer that will be there a few more years. They're cautious and they're always looking for a good deal.''
Spending is also suppressed by the weak income growth that has marked this recovery until recently, said Joel Naroff, president of Naroff Economic Advisors.
``Until wages start growing a lot faster than inflation, retailers will not be seeing a whole lot of additional spending,'' said Naroff.
Home Depot raises outlook
Atlanta-based Home Depot led the way in Tuesday's earnings reports, as the nation's largest home-improvement company beat Wall Street predictions by reporting that second quarter net income rose 18%.
The company raised its full-year earnings and revenue guidance.
Home Depot net earnings for the last three months were $1.8 billion or $1.24 per share. that was up from $1.5 billion or $1.01 per share in the same period of 2012. Wall Street analysts had expected earnings of $1.21 per share on $21.79 billion in revenue.
"The second quarter results exceeded our expectations as our business benefited from a rebound in our seasonal categories, continued strength in the core of the store and the recovering housing market in the U.S.," Home Depot CEO Frank Blake said in a statement issued with the results.
Investors weren't totally sold on the news, though. Home Depot shares closed down just over 1% at $74.29 Tuesday.
Penney sees smaller drop in revenue
J.C. Penney reported that second-quarter revenue fell 12% to $2.66 billion. But that was less than the 23% drop during the same period last year.
Penney's said it lost $586 million, or $2.66 per share, during the last three months. That compared with a loss of $147 million, or 67 cents per share, in last year's second quarter. Revenue was $3.02 billion a year ago.
Wall Street analysts had expected a $1.07 loss per share on $2.77 billion in revenue.
The slower decline in sales could be a preliminary sign that the troubled Plano, Texas-based firm, among the nation's best-known retailers, is starting a turnaround after a bungled transformation plan and boardroom battling with Bill Ackman. The hedge fund manager, Penney's largest investor, stepped down last week.
Penney's CEO Mike Ullman, who returned in April and restored the tradition of regular sales that had been scrapped by predecessor Ron Johnson, warned that any comeback was likely to be slow.
"There are no quick fixes to correct the errors of the past," Ullman said in a statement with the earnings report. "That said, we have identified the challenges, put solid plans in place to address them and have experienced and capable people in key roles to do so."
Penney's shares closed up nearly 6% at $14.
Best Buy beats expectations
Consumer-electronics giant Best Buy posted higher-than-expected earnings after cutting costs and updating stores in a bid to stave off rising competition from online companies and discounters.
The Minnesota-headquartered firm reported it earned $266 million, or 77 cents per share, during the last three months. That was up from $12 million in revenue, or 4 cents per share, during the same period of 2012.
Reported earnings totaled 32 cents per share, excluding one-time items. Wall Street analysts had forecast 12 cents per share.
Best Buy CEO Hubert Joly said the company had focused on addressing declining comparable store sales and operating margins — major issues discussed during an investor meeting in November. The company launched a "Renew Blue" rallying cry, he said.
"While we are clear there is much more work ahead, we have made measurable progress since we unveiled Renew Blue last year, including near flat comparable store sales, substantive cost take outs, and better-than-expected earnings in the past three consecutive quarters," said Joly in a statement issued with the earnings report.
Investors greeted the news by sending Best Buy shares up more than 13% for a Tuesday trading close at $34.80.
Barnes & Noble losses widen
New York-based Barnes & Noble reported its first-quarter loss more than doubled — a drop wider than expected by Wall Street analysts — as former chairman Leonard Riggio dropped a bid for the chain's retail business.
Net losses for the three months ending in late July totaled $87 million, or $1.56 per share. Barnes & Noble lost $39.8 billion, or 76 cents per share, during the same time period last year. The loss ran to 86 cents per share, excluding one-time items. The result was higher than the 81 cents forecast by analysts.
In a statement, Riggio said he withdrew the purchase offer because he believed "it is in the company's best interests to focus on the business at hand."
"Right now our priority should be to serve the more than 10 million customers who own (e-reader) NOOK devices, to concentrate on building our retail business, and to accelerate the sale of NOOK products in our stores, and in the marketplace," said Riggio, who reserved the right to revive his offer.
Investors clearly disapproved with the results, sending Barnes & Noble shares down more than 12% for Tuesday's trading close at $14.61.