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Retailers Post Improved Results But Outlook Turns Cautious

A BJ's Wholesale Club in Stoneham, Massachusetts.
Michael Dwyer
A BJ's Wholesale Club in Stoneham, Massachusetts.

Several retailers posted improved quarterly earnings on Tuesday, but many remained cautious about the rest of the year.

Retail stocks were mixed in reaction, with shares of upscale retailers such as Sakstrading lower, while club stores such as BJ Wholesale Clubgained ground. Both were among those reporting results Tuesday.

"Weakening consumer spending has been weakening further," says Kimberly Greenberger, retail analyst at Citigroup. "We haven't seen mall traffic as disappointing since the last recession in 2001."

Target Provides 'Conservative Outlook'

Target, the second-largest U.S. discount retailer, may be benefiting from a trend toward increase thrift.

On Tuesday, the company said earnings rose to $686 million, or 80 cents a share in its second quarter, from $609 million, or 70 cents per share, a year earlier.

Target said total quarterly revenue rose to $14.62 billion from $13.35 billion a year ago, while same-store sales - a key retail gauge that measures sales at stores open longer than one year - increased 4.9 percent.

Although the company's results were in-line with Wall Street's targets, the company sent cautious signals for the rest of the year.

During a conference call, Target President Gregg Steinhafel said the company was planning its business very conservatively.

According to Target officials, the back-to-school season, one of the key shopping periods for U.S. retailers, has gotten off to a slower-than-expected start. But it has been gaining momentum.

Other retailers also are seeing a similiar trend. According to Citigroup's Greenberger, a shift in tax holidays in some states may be contributing to the weaker start to the shopping season.

Wachovia Securities Senior Retail analyst John Morris said research conducted by his firm showed a pick-up in mall traffic in the past week. He is expecting sales in August to turn positive.

"We do not see a big spillover effect on consumer behavior as it relates to the credit crunch and the headlines that we’ve seen in the last couple of weeks,” Morris said, in an interview on "Squawk on the Street."

However, it is clear that there continue to be concerns about future spending. Last the Reuters/University of Michigan Surveys of Consumers showed that U.S. consumer sentiment -- which is seen as an indicator of future spending -- fell to its lowest point this year in August.

Staples CEO 'Worried' About Consumers

Although Staples was able to post second-quarter profit and revenue that met analysts' expectations, the company is clearly concerned about future spending.

Staples Chief Executive Ron Sargent told investors during a conference all that he was "worried" about the current state of consumer spending.

"If you're a one-person business or two-person business, you tend to act a little more like a consumer than a business," Sargent said on the call. "They're having the same pressure the consumers are having."

Staples , the largest U.S. office supplies retailer, posted an 11% increase in quarterly profit Tuesday, helped by higher sales of laptop computers and software.

Net income rose to $178.8 million, or 25 cents a share, from $161.2 million, or 22 cents a year earlier.

Despite higher quarterly sales, same-store sales at its North American division slipped 2% compared with the year-earlier quarter, a decline the company blamed on lower sales of furniture and supplies.

BJ's Turnaround Taking Hold

But consumers were stocking up on perishable items as well as flat-screen televisions at BJ's Wholesale Club . The retailer reported a higher-than-expected quarterly profit as the No. 3 U.S. warehouse club operator works to turn around its business.

Profit for the second quarter was $36.3 million, or 55 cents a share, up from earnings from continuing operations of 52 cents a share.

Analysts on average were expecting 41 cents, according to Thomson Financial.

BJ's, which competes with larger rivals Costco Wholesaleand Wal-Mart's Sam's Club, is trying to get its business back on track after facing disappointing sales and fewer customers coming to its clubs.

Saks Sees Weaker Margins

Saks also turned in an improved performance, as its second-quarter loss narrowed on strong same-store sales growth. But the results weren't enough to please investors. Saks shares tumbled after the upscale retailer said its gross margins will likely be flat for the rest of the year.

The company reported a second-quarter loss of $24.6 million, or 17 cents a share.

Analysts surveyed by Thomson Financial, who typically exclude one-time items, forecast a loss of 15 cents a share on sales of $684.6 million.

Second-quarter sales jumped 15% to $694.1 million, from $603.8 million in the prior-year period.

During a conference call, Chairman and Chief Executive Stephen Sadove said, "Our customers are responding to our focused merchandise assortment, as well as our customer service and marketing initiatives."

Results from Saks also sparked selling among shares of its competitors, including Nordstrom.

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