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Earnings Analysis: 
Kmart Earnings Improve, Sales Slip
Author: George Shopov

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Kmart Holding Corporation (KMRT), which emerged from bankruptcy in May 2003, posted Wednesday quarterly earnings that increased 14% from a year earlier, aided by lower costs that offset a drop in sales. The Troy, Michigan-based U.S. third-largest discount retailer announced net income of $309 million, or $3.09 per share, for the fourth quarter of fiscal 2004, up from net income of $270 million, or $2.78 per share, for the prior-year equivalent. Excluding unusual items, fourth-quarter earnings totaled $259 million, or $2.59 per share, compared with $215 million, or $2.23 per share, last year. For the quarter ended January 26, Kmart recorded sales of $5.91 billion, a 6.6% decline compared with year-ago sales of $6.33 billion. Same-store sales dipped 4.5% during the quarter. However, this was an improvement, as same-store sales declined 13.5% a year ago. In the second and third quarters of fiscal 2004, the drop was 12.8% and 14.9%, respectively. For all of 2004, Kmart earned $1.1 billion, or $11 per share.

The Kroger Co. (KR) announced Tuesday that its quarterly net loss widened from a year ago, due to a charge to write down the value of the Ralphs and Food 4 Less operations in southern California. The supermarket giant posted a net loss of $675.9 million, or 93 cents a share, for the fourth quarter of fiscal 2004, compared with a loss of $337.4 million, or 45 cents a share, for the same quarter a year earlier. Excluding special items, Kroger earned 28 cents per share for the quarter ended January 29, missing the average analysts’ estimate of 35 cents per share. The Cincinnati, Ohio-based company said the financial results are subject to restatement because of a change in accounting practices on leases Sales for the quarter edged up 5% to $13.7 billion from $13 billion, last year. For the full fiscal year, Kroger reported a net loss of $128 million, or 17 cents per share, in contrast to a net profit of $314.6 million, or 42 cents per share, for 2003. Annual sales climbed 4.9% to $56.4 billion.

Looking ahead, the company said it expects its 2005 earnings to exceed the 2004 operating profit of $1.16 a share. The mean analysts’ estimate is for a profit of $1.28 a share.

Kroger shares plunged 4.91% to close Tuesday at $16.85.

Texas Instruments Incorporated (TXN) reduced after market close Monday its first-quarter earnings and sales guidance, hurt by weaker-than-expected demand for its Digital Light Processing chips used in TV’s and projectors. The world’s third-largest chipmaker lowered the high end of its previously projected range for earnings and sales, and now expects a profit of 22 cents to 24 cents per share, for the quarter ending March 31, on revenue of $2.91 billion to $3.03 billion. That compares to the company’s earlier forecast for earnings between 22 cents and 26 cents per share, on revenue of $2.9 billion to $3.14 billion. The consensus analysts’ forecast was for a profit of 24 cents per share, on sales of $3.04 billion. Dallas-based Texas Instruments explained that sales of televisions and projectors were lower than anticipated at the end of 2004, which led to an increase of inventory among manufacturers, and now its customers are trying to reduce their inventories quickly.

TI shares closed Monday at $27.37, up 48 cents, or 1.79%. The stock dipped 3.18% to $26.50 in after-market trade.

Marvel Enterprises, Inc. (MVL) announced before the bell Monday that its quarterly income more than doubled from a year ago, driven by solid revenue growth. The New York-based entertainment and licensing company reported net income of $30.1 million, or 27 cents per share, for its fiscal 2004 fourth quarter, in contrast to net income of $13.5 million, or 12 cents per share, last year. Marvel said its latest earnings included an income tax credit of 6 cents a share. The average analysts’ estimate was for a profit of 16 cents per share. For the quarter ended December 31, sales advanced 17% to $100.5 million from $85.7 million, for the 2003 equivalent. Analysts had expected sales of $86.8 million. Marvel, which is one of the world's leading comic book publishers, said net sales in its licensing segment swelled 89% to $56.7 million, accounting for more than half of total sales. The company cited contributions from its joint venture with Sony Corp. for Spider-Man movie merchandising and strong international licensing revenue as main factors for the improvement. Net sales in the publishing segment climbed 16% to $22.1 million, while the toy segment saw sales tumble 41% to $21.8 million, as sales of action figures and accessories based on Lord of The Rings and The Hulk movies decreased from a year ago.

Marvel confirmed that it still expects 2005 earnings in the range of $1.07 to $1.12 per share, in line with analysts’ projections.

Take-Two Interactive Software, Inc. (TTWO) reported Thursday that its quarterly earnings soared 74% from a year ago, outpacing analysts’ expectations, driven by surging demand for its Grand Theft Auto: San Andreas game. The video game publisher announced a net profit of $55.2 million, or $1.19 per share, for the first quarter of fiscal 2005 ended January 31. The earnings powered past Wall Street’s consensus forecast of $1.09 per share. For the 2004 corresponding period, the company earned $31.8 million, or 70 cents per share. Quarterly revenue jumped 34% to $502.5 million from $375.5 million, due to strong holiday sales of the latest Grand Theft Auto videogame as well as solid sales of team sports simulators from the company’s 2K Sports unit. Analysts had called for revenue of $452.6 million, on average. Since its release in October, ‘San Andreas’ has sold 12 million units worldwide.

For its second quarter, however, New York-based Take-Two forecast a deeper loss of 20 cents per share, on revenue of $200 million to $210 million. That compares to an earlier guidance of a loss of 10 cents to 20 cents per share, on revenue of $170 million to $190 million. The company said a mix of investment spending and increases in marketing will have a negative impact on results. Analysts had expected a loss of 11 cents per share, on revenue of $182.4 million. For the third quarter, Take-Two pegged earnings at 5 cents to 15 cents a share, also below analysts’ mean estimate of 35 cents a share.
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Sources: Data collected by and from company press releases, filings and corporate websites.
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