Gap meets expectations; Kmart falls short

Discount retailer Kmart missed expectations, however, blaming a wider-than-expected loss on its decision to reduce inventory. Lands' End also missed expectations, blaming the dollar's strength overseas.

Meanwhile, Best Buy, the nation's largest specialty chain, warned that third- and fourth-quarter earnings will fall well short of expectations, sending shares plunging more than 35 percent.

Analysts believe that rising fuel prices, stock market volatility and declining consumer spending continue to take their toll on retailers, and they forsee the problem won't disappear anytime soon.

"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."

"It's cutting across all channels," added Kurt Barnard, publisher of Barnard's Retail Trend Report, based in Upper Montclair, N.J. "This is a new chapter in retailing and spending, and it will continue through the holiday season."

"The Wall Street wealth effect is dead," he continued. "A lot of consumers are realizing that they need to look at dependable sources of income, rather than on Wall Street home runs."

Gap Inc.

The company said Thursday 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.

Shares of Gap fell $1.88, or 7 percent, to $24.38 in trading on the New York Stock Exchange.

Kmart Corp.

Efforts by Kmart to liquidate unwanted inventory led to a third-quarter loss of $67 million, or 14 cents a share, worse than Wall Street's estimated loss for the quarter.

The loss in the 13 weeks ending Oct. 25 compared with earnings of $27 million, or 5 cents a share, in the year-ago period, the discount retailer said.

First Call/Thomson Financial's survey of analysts had forecast a loss of 10 cents a share.

Third-quarter sales totaled $8.20 billion, up 3 percent from $7.96 billion a year earlier.

"Our overall performance fell short in the third quarter primarily due to soft sales as our liquidation of inventory cannibalized our regular sales," chairman and chief executive Chuck Conaway said.

Kmart said same-store sales for the quarter increased 1.4 percent from 1999's third quarter.

For the first three quarters of 2000, Kmart lost $493 million, or $1 per share, compared with a loss of $9 million, or 1 cent a share, in the same period a year earlier.

In a bid to bolster earnings, Kmart in July said that it was shutting 72 of its less-profitable stores in 28 states, affecting 5,000 workers. The Troy, Mich.-based company has 2,163 Kmart retail outlets.

The company also has said that it plans to invest nearly $2 billion on infrastructure improvements over the next two years.

Shares of Kmart fell 18.8 cents to $5.75 on the NYSE.

Lands' End Corp.

Lands' End reported higher sales but lower earnings in the third quarter, due in part to weak foreign currencies.

The Dodgeville, Wisc.-based retailer said net income for the quarter ended Oct. 27 was $4.4 million or 15 cents per share, a sharp reduction from the $8.8 million, or 28 cents per share earned in the same quarter last year.

First Call/Thomson Financial analysts were expecting 20 cents per share.

Revenues were $336.4 million, up 3 percent over last year's third quarter sales of $326 million. The company reported 5 percent growth in both its core and specialty business segments. Corporate sales had double digit growth.

But international business sales were down 11 percent, compared with the same period last year, mostly due to the dollar's strength abroad.

The net income figure includes a foreign currency exchange after-tax loss of $1.2 million. During third quarter 1999, the company had a gain of $400,000 in this area.

Also contributing to lowered income was a 7.1 percent increase in expenses. The company said it sent out more catalogs to attract new customers and reactivate old ones.

Sales over the company's Web site were about 65 percent higher than those in third quarter 1999.

For the nine months ended Oct. 27, Lands' End earned $2.8 million, or 9 cents per share, compared with $19.7 million, or 64 cents per share in the year-ago period. Revenue was $858 million, down from $870.2 million in the year-ago period.

Shares fell 71 cents to $25.50 in trading on the NYSE after falling as low as $22.18.

Best Buy Co.

The Minneapolis-based company said Thursday that a slowing economy is forcing it to hold more sales, and is expected to trim earnings for the fiscal third quarter ending Nov. 25 to about 27 cents a share, far below the consensus estimate of 44 cents by analysts surveyed by First Call/Thomson Financial.

Earnings for the fourth quarter ending March 3, 2001, will be about 90 cents a share, compared to the consensus estimate of $1.02, the company said.

Best Buy shares were down 38 percent, or $20 at $32.38 in trading on the NYSE.

"We are experiencing lower gross margins as retailers fight to gain market share in a more cautious consumer environment," said Chief Financial Officer Allen Lenzmeier.

However, Lenzmeier expressed confidence that the company will be able "to take the appropriate actions to respond to current market conditions."

Best Buy expects to see comparable stores sales to increase by 5 percent, Lenzmeier said.

Actual third quarter revenues will be revealed Nov. 30, while a more complete earnings report will be released Dec. 12.