NEW YORK – Two leading retail stalwarts – J.C. Penney Co. and discounter Target Corp. – reported on Thursday better-than-expected profits in the second quarter. Still, the outlook for consumer spending in the coming months remains muddled amid higher energy costs, rising interest rates, war in the Middle East, and the latest terrorist threat.
Target, the nation’s second-largest discounter behind Wal-Mart Stores Inc., overcame its sales slowdown in July and reported a 13 percent increase in second-quarter profits. The results were fueled in part by the strength of its credit card operations. The company maintained its profit outlook for the year.
Penney’s second-quarter profit surged by more than one-third, helped by improving sales of jewelry, accessories and women’s apparel. It also offered a profit outlook that exceeded Wall Street expectations.
“I think it would be prudent for us as retailers to say that the pressures on the consumer are out there, whether they be increasing energy costs, adjustable rate mortgages…,” Mike Ullman, chairman and chief executive of Penney told investors during a conference call Thursday.
Target, based in Minneapolis, said it earned $609 million, or 70 cents per share, during the quarter that ended July 29, up from $540 million, or 61 cents per share, during the quarter that ended July 30 last year.
Revenue rose 11.3 percent to $13.3 billion. That included credit card revenue of $388 million, up 20 percent from the same period last year.
Analysts surveyed by Thomson Financial were expecting earnings of 69 cents per share on revenue of almost $13.4 billion. Last month Target said it would meet or exceed 69 cents per share.
Target said its sales at stores open at least a year – a key retail measure – rose 4.6 percent for the quarter, after rising 6.7 percent during the same period a year ago.
Target’s shares rose $1.84, or 4 percent, to $47.12 in afternoon trading on the New York Stock Exchange, trading at the low end of its 52-week range of $44.70 to $59.29.
For July, Target’s comparable-store sales rose just 3.1 percent, less than Wall Street had expected. That has prompted concern that it won’t be able to meet analyst expectations for earnings of $3.11 per share for the full year.
On Thursday, Target Chief Financial Officer Doug Scovanner told analysts during a conference call that the company still expects to make $3.11 per share for the year. But he said that even if that happens, third-quarter earnings would probably be below analysts’ expectations, currently 56 cents per share. He said fourth-quarter earnings could be higher than expected.
Penney, based in Plano, Tex., said it earned $179 million, or 76 cents per share, in the quarter ended July 29. It said earnings from continuing operations were 75 cents per share.
Analysts had expected 73 cents per share, according to a survey by Thomson Financial. A year earlier, the company earned $131 million or 50 cents per share.
Revenue rose 6.5 percent, to $4.24 billion, from $3.98 billion a year earlier. The sales results were slightly above the $4.19 billion forecast by analysts.
Same-store sales rose 6.6 percent in the quarter.
Demand was strong for fine jewelry, children’s and women’s accessories, and improved for women’s apparel, said Chairman and Chief Executive Myron E. Ullman III, in a statement.
With its five-year turnaround behind it, Penney is bolstering its offerings of exclusive merchandise to appeal to a trendier customer.
The retailer predicted earnings of $1.07 per share in the third quarter and $1.84 in the fourth quarter – a penny per share above Wall Street’s current consensus for both periods – and full-year earnings of about $4.55 per share, a nickel higher than analysts expect.
Despite economic pressures on consumers, Ullman said Penney has benefited from the disruptions related to rival Federated Department Stores Inc.’s move to convert most of the former May Department Stores Co. stores to Macy’s. Ullman also sees opportunities in Macy’s strategy to upgrade its merchandise to attract younger and more affluent customers.
Penney’s shares rose 49 cents to $64.49 in afternoon trading on the New York Stock Exchange, near their 52-week high of $69.34.
——- AP Business Writers Dave Koenig in Dallas and Josh Freed in Minneapolis contributed to this report.
