Home Depot, Target rely on cost cuts; TJX sees profit rise

NEW YORK -- Home Depot and Target said Tuesday that second-quarter profits and sales fell but beat expectations as consumers continued to pinch pennies. Breaking the mold: Discount retail operator TJX reported higher profit and sales.

Home Depothd said profit fell 7%, as the nation's biggest home-improvement retailer shuttered its Expo business and continued to be pinched by the recession.

Still, the company's adjusted results beat Wall Street's expectations, and it lifted its guidance for full-year earnings from continuing operations.

Home Depot earned $1.12 billion, or 66 cents a share, for the period ended Aug. 2. That's down from $1.2 billion, or 71 cents a share, a year earlier.

Excluding Expo-related charges, profit was 67 cents a share, topping analysts' forecasts for 59 cents a share, according to Thomson Reuters. Home Depot had announced in January that it planned to close its 34 Expo Design Centers.

Quarterly results also included an approximately $50 million tax benefit related to a favorable foreign tax settlement. The tax benefited boosted earnings about 3 cents a share.

Revenue dropped 9% to $19.07 billion, falling short of the $19.23 billion forecast of analysts polled.

Sales at stores open at least a year, known as same-store sales, slid 8.5%. Same-store sales are a key indicator of retailer performance because they measure growth at existing stores rather than newly opened ones.

Cost-cutting helped results, as the company said total operating expenses fell 8% to $4.56 billion from a year ago.

At Home Depot, the average ticket fell 9.3%, to $52.25, but the number of customer transactions actually edged up 0.3%, a key figure, said Janney Montgomery Scott analyst David Strasser, because it is the first time since 2004 traffic was positive in the second quarter.

"We have to believe that this is the result of better advertising, a more sophisticated pricing strategy and general improvements in the service levels at stores," said Strasser, who reiterated his "Buy" rating.

"We are buyers of Home Depot today, as we believe that the ongoing turnaround will provide offsets to the ongoing weak macro environment."

Home Depot lifted its 2009 earnings from continuing operations forecast to flat to up 7%. Adjusted profit is expected to fall 15% to 20%. Its prior guidance was for a 7% dip in earnings from continuing operations.

The retailer backed its expectation for revenue to be down about 9%.

Analysts predict full-year net income of $1.44 a share on revenue of $65.4 billion.

Home Depot, which has more than 300,000 workers, ran 2,240 retail stores at quarter's end.

Targettgt reported that its second-quarter profit fell 6.3%, but results surpassed Wall Street forecasts amid cost-cutting and improvements in its credit-card business.

The discounter said that it earned $594 million, or 79 cents a share, in the three-month period ended Aug. 1. That compares with $634 million, or 82 cents a share, in the year-ago period.

Total revenue fell 2.6% to $15.07 billion.

Analysts surveyed by Thomson Reuters projected a profit of 66 cents a share on revenue of $15.1 million.

Sales fell 2.7% to $14.6 billion, while same-store sales fell 6.2%.

Second-quarter gross profit margin rate increased to 31.9% from 31.2% in 2008 due to improvements in certain merchandise categories, partly offset by faster sales growth in non-discretionary items like food that have thinner profit margins.

Profit from the credit card business dropped to $63 million for the quarter from $74 million in the year-ago period as a result of lower earnings on the overall portfolio and Target's lower investment in the division's average receivables. Net write-offs in the quarter were $304 million, in line with company expectations.

Target sold 47% of its credit card receivables to JPMorgan Chase in May 2008.

Discounters, particularly Wal-Mart Stores, have benefited from consumers switching to cheaper stores and focusing on necessities. But at Target, where more than 40% of revenue comes from non-essentials like funky jeans and bedspreads, the cheap-chic formula that once was its strength has became a drag as shoppers focus on basics.

Target has been reducing staff, tightening consumer credit card underwriting and freezing senior managers' salaries. It's also expanding further into food sales, which it believes will help drive customer traffic.

Discount retail operator TJXtjx said its profit rose 31% as its stores like T.J. Maxx and Marshalls continued to lure in cost-conscious shoppers.

The company, which also operates HomeGoods stores, said it earned $261.6 million, or 61 cents per share, compared with $200.2 million, or 45 cents per share, a year ago.

The results beat Wall Street's expectations by 1 cent per share, according to Thomson Reuters.

Sales for the period ended Aug. 1 rose 4% to $4.75 billion from $4.55 billion, meeting analysts' estimates, as consumers sought out value amid the recession. Consolidated same-store sales increased 4%.

Same-store sales at the division that includes T.J. Maxx and Marshalls rose 4%, while net sales rose 6.4% to $3.15 billion. The HomeGoods division saw same-store sales rise 9%, while revenue jumped 18% to $413 million.

Earlier this month the company raised its guidance for the second quarter based on its better-than-expected results in the quarter. TJX offered its full-year earnings expectation, in line with analyst estimates. It expects earnings per share from continuing operations in a range of $2.26 to $2.38. Analysts expect the company to earn $2.36 in the fiscal year, according to Thomson.