Retailers Post Earnings Declines

Retailers Kmart Corp., Gap Inc., Ames Department Stores Inc. and Lands’ End Inc. reported declines in third-quarter results Thursday and Best Buy Co. warned of lower profit in the second half of the year amid overall sluggishness in the retail sector.

Best Buy’s announcement sent its shares down $20.31, or 39%, to close at $32.06 on the New York Stock Exchange, wiping out about $4 billion in market capitalization for the Minneapolis-based company.

The consumer electronics retailer said an overall consumer slowdown and pricing pressure from discounters forced it to make steep price cuts on its products, including DVD players, which eroded profit margins.

Analysts and retail executives say that rising fuel prices, stock market volatility and declining consumer spending continue to take their toll, and they foresee these problems will most likely continue through the holiday season.

“The retail slowdown has become more widespread,” John Morris, an analyst at Gerard, Klauer Mattison. “It was first felt in the Midwest, but now you’re seeing the party slow down on the East Coast.”

Best Buy said it expects third-quarter earnings of about 27 cents a share, well below the consensus analysts’ estimate of 44 cents. Fourth-quarter earnings will come in at about 90 cents a share, compared with expectations of $1.02, the company said.

Prompted by the company’s efforts to improve service, more consumers cashed in product rebates, contributing to margin pressures, Best Buy executives told analysts. The company also said it spent more to promote its e-commerce business and to open new stores.

Best Buy’s announcement also pushed down shares of its rivals.

Circuit City fell $1.31 to close at $12.94, and RadioShack fell $8.63, or 14%, to close at $54.44 on the New York Stock Exchange.

The decline in RadioShack came despite the company’s announcement that it remains “bullish” about the holiday season and will meet the 75-cent average estimate of analysts for the fourth quarter.

* Discounter Kmart, which has lost 40% of its market value this year, reported a loss for the quarter ended Oct. 25, citing its decision to reduce inventory in addition to weak sales. The company had a loss of $67 million, or 14 cents a share, compared with a profit of $27 million, or 5 cents, a year ago, as a planned inventory liquidation cut into regular sales. Revenue rose 3% to $8.20 billion.

Analysts had forecast a loss of 10 cents a share, according to First Call/Thomson Financial. Kmart said, however, that because of a circumstance involving its purchase of preferred securities that caused additional dilution to its per-share values, the comparable figure was 10 cents a share, meeting expectations.

In New York Stock Exchange trading, Kmart closed off 13 cents at $5.81, Gap fell $1.63 to close at $24.63, and Lands’ End fell $2.18 to close at $24.03. Ames fell $1.81, or 39%, to close at $2.78 on Nasdaq.

At a Glance

Details of other retail earnings, excluding one-time gains or charges unless noted:

* Gap said its third-quarter profit fell 41% to $186 million, or 21 cents a share, in line with analysts’ forecasts, as same-store sales in its Gap, Banana Republic and Old Navy chains dropped.

San Francisco-based Gap, a specialty retailer that has struggled with slow sales and inventory problems, said sales rose 12% to $3.41 billion. Same-store sales dropped 8%, however.

* Discount retailing chain Ames posted a wider-than-expected third-quarter loss and said it will close 32 stores, cut 2,000 jobs and take a charge of $140 million in a bid to be more competitive in a softening retail environment. The company’s loss expanded to $37.2 million, or $1.27 a share, from a year-ago loss of $27.7 million, or 95 cents. Analysts expected a much smaller loss of 41 cents, according to First Call/Thomson Financial.

* Lands’ End, a catalog retailer known for its preppy casual clothing, said its third-quarter earnings plunged 50% to $4.4 million, or 15 cents a share, well below the 20 cents analysts expected. But Lands’ End said it expects “substantial” improvement in fourth-quarter results. Sales in the latest quarter rose 3% to $336.4 million.

* Guess Inc. said third-quarter earnings dropped, falling well below analyst forecasts, and said fourth-quarter earnings also will be down. The Los Angeles-based clothing designer and retailer said operating profit fell 46% to $5.64 million, or 13 cents a share, on a 43% rise in sales of $206.8 million, as it cut prices to move merchandise. Analysts had expected a much better performance of 36 cents a share. The year-earlier results exclude a gain of $3.8 million for the sale of property and equipment. Guess said it expects fourth-quarter profit to fall to about 8 cents to 10 cents, versus 44 cents a year ago, well below analyst expectations of 36 cents. Guess also said it will take a charge of as much as $10 million to close several underperforming stores.

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Bloomberg News contributed to this report