Earnings Reports for Jan. 11

Gateway’s Earnings Fall Far Short of Forecasts

Gateway Inc., the No. 2 direct seller of personal computers, reported fourth-quarter results today that badly missed diminished expectations, and also forecast 2001 sales growth of just 3 percent, prompting it to trim its workforce by 10 percent and record a charge.

The surprise earnings report, which came a week earlier than scheduled, is the latest sign of just how precipitously the worldwide PC market has slowed amid flagging economic growth in the United States and across the globe.

Gateway said that excluding a previously announced $187 million pretax charge for a write-down on the company's investments, it had fourth-quarter earnings of $37.6 million, or 12 cents a share. By comparison, in the year-ago period Gateway had net income $126 million, or 38 cents.

On that basis, the results were far below the 37 cents a share consensus forecast analysts had expected, according to First Call.

Sales fell 6.9 percent to $2.37 billion from $2.55 billion. Gateway had already warned of the sales and earnings shortfall on Nov. 29.


Koogle warned, however that “over the next year, we expect to see some short-term effects from the apparent softening economy and the continued realignment of our client base.”

After starting as a search engine in the mid-1990s, Yahoo! grew into a full-service information and shopping portal whose Web pages are visited more than 900 million times a day.

In hopes of remaining a rare Internet success story in this weakening economy and beyond, Santa Clara-based Yahoo! has been coming up with new ways to make money beyond charging for advertising, which is estimated to account for 90 percent of the company’s revenue.

Yahoo! said it has 3,700 advertisers, up from 3,450 in the third quarter, and is getting more ads from traditional companies, including 55 of the Fortune 100 businesses.

Dependence on online advertising has become increasingly risky as dot-coms and other high-tech companies have slammed the brakes on their spending, and Yahoo’s outlook seems to indicate worries about this.

Many analysts have applauded Yahoo!’s recent moves to new revenue sources, such as licensing branded corporate intranet sites.

Yahoo! said this week it has lined up 18 customers for the high-margin sites, including McDonald’s Corp. and the German pharmaceutical giant Bayer AG.

Yahoo also began charging fees today to people who use the site to auction things. The fees range from 20 cents to $1.50 — lower than the 25 cents to $2 charged by rival eBay Inc. Yahoo! still will not charge commissions on successful auctions, which eBay and Amazon.com do.


Wal-Mart Profits Up 5.8 Percent

Wal-Mart Stores, the world’s largest retailer, reported today a modest 5.8 percent increase in third-quarter profits that matched Wall Street forecasts, but a slowdown in consumer spending hurt the discounter’s earnings growth.

Wal-Mart said net income in the quarter ended Oct. 31 rose to $1.37 billion, or 31 cents per diluted share, from $1.29 billion, or 29 cents a share, in the same period a year earlier.

Analysts polled by research firm First Call/Thomson Financial had expected the retail giant to report a profit of 31 cents a share.

In the year-ago third quarter, Wal-Mart’s profits grew 29 percent, but this year the once red-hot U.S. economy has cooled somewhat and fuel prices are higher, resulting in fewer dollars spent on retail purchases.

“We are pleased that in a difficult quarter we were able to achieve record sales and earnings,” Lee Scott, Wal-Mart’s president and chief executive, said in a statement. “We gained market share and generated good earnings growth in a challenging retail environment.”

Sales in the quarter rose to $45.68 billion from $40.9 billion a year ago. Total sales at stores open at least a year, or same-store sales, increased 4.9 percent. Same-store sales at the Wal-Mart discount stores rose 4.5 percent while same-store sales at Sam’s Clubs rose 6.6 percent.

For the third quarter the Wal-Mart Stores segment, including Supercenters, had operating profit of $2.249 billion compared to $1.993 billion in the same period last year, a 12.8 percent increase. Sam’s Club stores had an operating profit for the quarter of $219 million vs. $194 million a year ago.

The company’s international unit reported an operating profit of $241 million for the quarter, a 25.5 percent increase from a year ago.

Wal-Mart shares closed at $45-5/16 on Monday, not far from their 52-week low of $41-1/2. The stock’s 52-week high is $70-1/4.

As of Oct. 31, Wal-Mart had 1,723 Wal-Mart stores, 866 Supercenters, 469 Sam’s Clubs, and 15 Neighborhood Markets in the United States. The retailer also has stores in South America, Europe, Korea and Mexico.


Sluggish Sales Continue to Hurt Gap

The Gap, hurt by sluggish sales in its Gap, Old Navy and Banana Republic divisions, reported a 41 percent drop in third-quarter profits, but still met Wall Street expectations.

The San Francisco-based company said today it earned $186.3 million, or 21 cents per share, in the three months ended Oct. 28. That was down from $315.0 million, or 35 cents per share, during the year-ago quarter.

The results were in line with estimates from analysts surveyed by First Call/Thomson Financial.

Revenue increased 12 percent to $3.41 billion in the third quarter, from $3.05 billion from the year-ago period.

Sales at stores open at least a year were down 8 percent, compared to a 5 percent increase a year ago.

“Third quarter was very challenging,” said Millard Drexler, Gap’s president and chief executive officer. “We’re moving quickly to fix our problems and make sure we execute more consistently.”

For the nine months ended Oct. 28, Gap earned $605.7 million, or 69 cents per share, on revenue of $9.09 billion. In the year-ago period, Gap earned $713.2 million, or 79 cents per share, on revenue of $7.78 billion. BACK TO TOP

Kmart Disappoints the Street

Kmart, the No. 3 U.S. retailer, reported today a third-quarter loss that was worse than Wall Street forecasts, as results were hurt by inventory liquidation, which cut into regular sales.

Kmart said it had a loss of $67 million, or 14 cents a diluted share, compared with a profit of $27 million, or 5 cents a diluted share in the same quarter a year-ago.

Analysts polled by First Call/Thomson Financial had expected the discount retailer to report a loss of 10 cents a share.

Sales in the quarter rose 3 percent to $8.20 billion, compared to a year ago.

Kmart, battling fierce competition from other discounters like Wal-Mart Stores Inc., said in July it would close 72 stores and take a $740 million pretax charge to cover the closures and make inventory adjustments. At that time, the company warned earnings for the year would fall below expectations. BACK TO TOP


The Associated Press and Reuters contributed to this report.