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Walmart reports strong earnings, e-commerce gains ahead of holidays; J.C. Penney falls further behind

A shopper heads into a J.C. Penney store in Seattle. (Elaine Thompson/AP)

A rash of third-quarter earnings reports from some of America’s most iconic department stores ahead of the holidays highlights the chasm between those finding their footing in a shifting retail landscape and those struggling to keep up.

Although the U.S. economy is strong, it’s a tough time for traditional retailers that are fighting for their place in a space dominated by specialty brands and e-commerce. Classic stores such as J.C. Penney and Kohl’s are hitting the sort of pitfalls that sank industry titan Sears, which filed for bankruptcy last month. Others, such as Walmart, have reinvented themselves through acquisitions and a powerful digital presence.

This holiday season is shaping up to be fiercely competitive, as stores fight for markets vacated by fallen icons, such as Toys R Us and Sears, and compete with online heavyweight Amazon, which is slated to own 48 percent share of U.S. e-commerce, according to a recent eMarketer forecast. (Amazon chief executive Jeffrey P. Bezos owns The Washington Post.) For some retailers, this holiday season could be make-or-break.

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Walmart upped its year-end forecast Thursday for earnings and sales, despite a shortfall in revenue because of currency complications. It posted $124.9 billion in revenue, beating Wall Street’s expectations, with $1.08 earnings a share over the predicted $1.01. Grocery and e-commerce headlined Walmart’s performance this quarter, with online sales up 43 percent.

“We have momentum in the business as we execute our plan and benefit from a favorable economic environment in the U.S.,” Walmart chief executive Doug McMillon said in a statement. “We’re accelerating innovation and utilizing technology to shape the future of retail.”

After years of catering to value shoppers, Walmart has moved to capture younger, wealthier customers through a spate of acquisitions, such as plus-size clothing brand Eloquii, menswear line Bonobos and online indie clothing retailer ModCloth. Walmart had cut its forecast for fiscal 2019 because of the massive price tag on Indian online retailer Flipkart, the biggest acquisition in its history.

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The world’s largest retailer is also emphasizing e-commerce and convenience. By year’s end, Walmart is poised to overtake Apple as the third-largest U.S. e-commerce retailer, according to a recent eMarketer forecast.

“The retail giant continues to make smart acquisitions to extend its e-commerce portfolio and attract younger and more affluent shoppers,” eMarketer analyst Andrew Lipsman said in a statement. "But more than anything, Walmart has caught its stride with a fast-growing online grocery business, which is helped in large part by the massive consumer adoption of click-and-collect.”

Conversely, ailing department store J.C. Penney reported losses of $151 million, or $0.48 per share, falling short of expectations in its first quarter under its new chief executive, Jill Soltau. Before taking over last month, Soltau served as chief executive for fabric and crafts retailer Joann.

Like other department store chains, J.C. Penney is in a tough position as a middle-of-the-road retailer, something that is growing increasingly obsolete. As traditional brick-and-mortar stores try to compete with online retailers, they’re struggling to cut back on hordes of inventory and costly real estate.

The company has closed roughly 20 percent of its stores in the past few years, including 140 locations in 2017. But unlike its competitor, Macy’s, which pulled out of a three-year slump by closing dozens of stores, leveraging its assets and strengthening its digital performance, J.C. Penney continues to lag. At $2.65 billion, the company’s net sales were down 5.8 percent from last year.

Despite a digital push, J.C. Penney’s brick-and-mortar stores far outperformed its website this quarter, and the company admitted it still has a long way to go in terms of pruning its inventory, even after it reduced it 5.4 percent from a year ago. Most of its success this quarter came from apparel, as well as its beefed-up toy and baby selection.

During a conference call with investors Thursday, Soltau said she’s focused on figuring out who J.C. Penney’s prime customers are and what they want. The path back to profitability will probably be a long one, she warned.

“I’ve been in this business a long time, and I’m a student of the fundamentals of retail," Soltau said. “My experience in stepping into organizations that have had a lot of change has shown me that it does take time, and in most cases things don’t improve right away.”

The dismal earnings report knocked the company’s stock down 12 percent Thursday morning to scarcely above a dollar per share before climbing back to $1.36 by the end of trading.

Higher-end retailer Nordstrom also had a tough quarter because of errors in charging on its in-house credit card, reporting earnings per share of $0.39, far below Wall Street’s estimates of $0.64. The company attributed the miss to the $72 million it refunded to customers who were mistakenly overcharged in interest rates and stressed that it affected a relatively small number of customers and would be dealt with accordingly.

Unlike J.C. Penney, Nordstrom’s revenues were strong, up 3 percent from last year at $3.75 billion, and sales slightly exceeded analyst predictions. Still, stock fell after the earnings report, finishing down 3.5 percent.