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Industry Roundup: Q3 2014 Financial Results

Many retailers closed out Q3 of the 2014 fiscal year in the past few weeks, and look to gear up for a lucrative Q4. These companies need to analyze their Q3 results and understand the factors that brought them success (or setbacks) so they can perform their best when the holiday season comes around. While big box retailers and home improvement stores continue to chug along towards December in both sales revenue and income, Amazon hasn’t found a way to keep its business profitable.

Amid Heavy Investments, Amazon Loses Big             

Amazon posted an operating loss of $544 million during Q3, marking the largest quarterly loss in the company’s history. Within a day of the earnings release, stocks dipped 8.34% to $287.06 per share, reaching its lowest total of 2014. The stocks have since rebounded to $332.23 as of 12 pm, Nov. 25, 2014.

Although Amazon continues to grow in sales revenue at a 20% rate, investors are becoming more concerned with the lack of profitability in the face of the company’s heavy investments. As an example, the company made its largest investment of the year in acquiring video streaming and gaming platform Twitch for $970 million in cash. This year, Amazon also released the Kindle Voyage e-reader and its first smartphone, the Amazon Fire.

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Reports also surfaced in October that Amazon is venturing into the brick-and-mortar scene by opening a physical store in New York City during the holiday season.

To make matters worse, the retailer had to take a $170 million writedown in Fire phone inventory and supplier commitment costs related to the device. Q4 estimates will only continue to amplify these concerns, as operating income loss is expected to range between $430 million and $570 million.

Alibaba Releases First Earnings Report

Alibaba Group reported a 53.7% sales growth ($2.74 billion) in its first earnings report since launching its IPO in September. The e-Commerce giant had a year-over-year net profit loss of 38.6%, but still came out in the black with $494 million. The company’s investor release attributed the decrease to a significant increase in share-based compensation expenses and the acquisitions of UCWeb and AutoNavi.

Alibaba is now the largest e-Commerce business in the world with a $250.94 billion market capitalization, according to Forbes. Based on gross merchandise volume (GMV), consumers purchased $90.53 billion worth of products through the company’s online marketplaces.

Big Boxes: Wal-Mart Keeps Steady, While Target Moves Past Data Breach

Wal-Mart Stores improved Q3 earnings to $1.15 per share, beating Thomson Reuters projections of $1.12. Comparable U.S. store sales increased 0.5% during the quarter, while comparable Neighborhood Market store sales jumped 5.5%. Global e-Commerce sales increased 21%.

“We’re investing in key areas of our business, including wages in our U.S. stores and in e-Commerce and mobile capabilities,” said Doug McMillon, President and CEO of Wal-Mart Stores. “Being the price leader is an ongoing priority for us and a commitment to customers. As with every year, that is even more important during the holiday season. We have some things in our favor this fourth quarter, including lower fuel prices in the U.S. and other key markets, and we’re set to deliver for customers during this time.”

The retailer’s full year guidance is attributed to factors such as higher U.S. health care costs, incremental investments in e-Commerce, ongoing investments in Sam’s Club and tax rate. Wal-Mart notably cut health insurance benefits for part time employees in October in the wake of rising health care costs.

Target outperformed analysts’ expectations, spearheaded by a 3.1% rise in total profit, which netted the company $352 million. Q3 adjusted earnings per share (EPS) totaled $0.54, an increase from the company’s original expected guidance of $0.40 to 0.50. Comparable U.S. store sales grew 1.2%, better than the expected range of flat to 1%.

“Against negative traffic and a weak same-store sales comparison a year ago, Target could very well navigate into positive territory in both metrics in the U.S.,” said Kelly Tackett, Research Director – North America at Planet Retail. “The seemingly ubiquitous $5 gift card with purchase promotions, as well as its increasingly popular Cartwheel app, are driving traffic, while better-looking stores, more motivated employees and a trickle of what we hope will become an influx of more exciting merchandise should be inducing shoppers to spend.”

The retailer bounced back from a disastrous Q2, in which profit dropped more than 60% largely in part to expenses related to the data breach that exposed 40 million customers to fraud.

Fashion and Apparel Retailers Vary In Success; JCPenney Tries To Save Face     

Nordstrom reported a Q3 net profit of $142 million, up slightly from last year’s Q3 earnings of $137 million. Total revenues were $3.14 billion, representing an 8.9% increase from the same period in 2013. Comparable store sales increased 3.9%, reflecting “consistent trends throughout the year.”

During Q3, Nordstrom opened three full-line stores, including one in Canada, as well as 16 Nordstrom Rack stores. In September, the company acquired online menswear retailer Trunk Club for $357 million. The impact of the acquisition reduced the company’s Q3 EPS by $0.04.

Macy’s surpassed expectations for profits, earning a net income of $217 million. However, the department store chain missed sales expectations, as revenue dropped 0.7% to 6.19 billion. The company’s diluted earnings rose 30% to $0.61 per share, while comparable store sales exclusive of licensed businesses experienced a decline of 1.4%

As a result of the quarterly performance, Macy’s lowered its 2014 full year guidance from its initial earnings range of $4.40 to $4.50 per share to the new range of $4.25 to $4.35.

JCPenney cut its net losses 61.8%, slimming its Q3 total losses from $489 million in 2013 to $188 million in 2014. Sales performance across the company dipped 0.5%, including a flat comparable store performance.

The company’s home and fine jewelry departments were among the top merchandise divisions in the quarter, according to a company statement. During the quarter, JCPenney completed a $400 million unsecured debt offering.

Home Improvement Stores Profit; Staples Continues Shift To E-Commerce

The Home Depot experienced a 13.6% net profit increase despite disclosing its recent data breach in which the information from 56 million consumer payment cards was compromised. Comparable store sales for the quarter increased 5.2%, with U.S. stores accounting for a 5.8% increase collectively.

Diluted earnings climbed 21.1%, to $1.15 per share. The retailer maintained its full year forecast for 2014 earnings of approximately $4.54 per share, and still expects sales growth to reach 4.8%.

Net expenses for the data breach thus far have totaled $28 million, according to a company statement. However, the statement asserts that the company is presently unaware of the long term costs of the breach and as such, cannot estimate total costs beyond what was spent in the quarter.

Ace Hardware set a record for Q3 revenue with $1.13 billion, an increase of 9.1% year-over-year. Net income for the quarter also increased 8.4%, while increased customer counts and average transaction size contributed to a 3.7% comparable store sales increase year over year.

Ace added 48 new stores and canceled 22 stores in Q3 2014 for a net increase in store count of 26. This brought the company’s total global store count to 4,903 at the end of Q3 2014, an increase of 138 stores from the same period last year.

Staples stock surged 9.87% on Nov. 19 amidst higher than expected quarterly sales and profit. The retailer has shifted its focus further into e-Commerce, where it achieved sales growth of 9%. Total company sales decreased 2.5%, but increased 0.5% when excluding the impact of store closures and currency fluctuations.

The retailer has closed 127 stores in the year-to-date, and has plans to close at least 43 more by the end of FY2014.               

Staples has achieved annual cost savings of more than $200 million as part of a two-year plan to save the company $500 million.

Starbucks Furthers Expansion, Sets Sales Record

Starbucks ended its fiscal year by posting a record quarterly net revenue of $4.2 billion. Consolidated operating income reached $854.9 million for the quarter.

The coffee company is in a continued state of growth, as it agreed to acquire the remaining 60.5% share of Starbucks Japan for $914 million. The company also announced plans to open its Reserve Roastery and Tasting Room in Seattle, as well as 100 additional stores dedicated to highlighting the Starbucks Reserve coffee line.

Starbucks added 1,599 stores in fiscal 2014 and now has 21,366 outlets in 65 countries.

CVS Weathers Storm Post-Tobacco Ban

CVS boosted net revenues 9.7% to $35 billion, driven heavily by a 15.7% increase in revenues in the Pharmacy Services Segment. Net income decreased 24% to $900 million from $1.21 billion a year ago, primarily due to a $521 million pre-tax loss on the early extinguishment of debt.

Overall comparable store sales increased 2% and pharmacy store sales rose 4.8%, while front store comparable store sales dropped 4.5%.

In September, the pharmacy halted the sales of its tobacco products and changed its name from CVS Caremark to CVS Health.

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