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each had something positive for investors Thursday morning, but that doesn't mean they quelled all concerns.

Wal-Mart surprised some investors with its upbeat outlook for 2004. Meanwhile, Target beat analysts' fourth-quarter estimates and reported an unexpected improvement in business at its ailing Marshall Field's chain.

But both companies left something for investors to ponder, and their shares were mixed Thursday afternoon. Wal-Mart was up $1.18, or 2.1%, to $58.38 shortly before the close, but Target's shares were off 52 cents, or 1.2%, to $41.77.

At Wal-Mart, the questions center on its increasing cost structure and the declining profitability of its core namesake division. Target, meanwhile, still needs to decide what it will ultimately do with its Mervyn's and Marshall Field's divisions, as well as address the decline in profits at its credit card operation.

Investors had

questions about both companies going into the earnings reports. Wal-Mart rattled investors last quarter when company CEO Lee Scott

suggested consumer spending might be weaker than expected by analysts. Target

warned that its fourth-quarter earnings would likely come in below analysts' expectation.

Such concerns were borne out for much of the holiday shopping season as

both firms reported sales that were either below plan or at the low end of expectations. But both companies' sales rebounded at the

end of December and in


For Target, the pickup in sales

helped it earn 91 cents a share in the fourth quarter, beating analysts' expectations by 4 cents a share. Helping drive the company's outperformance was a rare gain in same-store sales at its Marshall Field's division. While same-store and overall sales continued to decline at Mervyn's, they declined at a far slower rate than in past quarters. (Same-store sales compare results at like outlets open more than one year.)

"Marshall Field's results give us optimism that we're starting to achieve positive results," Douglas Scovanner, Target's CFO, said on a conference call.

The strength of the company's department-store chains was "pretty amazing," said one buy-side analyst, who asked not to be named. The analyst, whose company owns Target and manages about $11 billion in assets, estimated that about half of the company's earnings surprise was due to better-than-expected results at Marshall Field's and Mervyn's.

"That was pretty impressive," the analyst said. "All their businesses were strong."

Although Wal-Mart

simply met analysts' fourth-quarter estimates, with earnings of 63 cents a share, it surprised Wall Street by forecasting earnings ranging from $2.34 to $2.38 a share in fiscal 2004. The midpoint of that range is 4 cents a share above Wall Street's consensus estimate, according to Thomson First Call.

"We're encouraged about consumer spending," Wal-Mart's Scott said on a prerecorded conference call.

Scott's upbeat assessment was a "pleasant surprise" after his comments from the previous quarter, said Ben Friedman, a portfolio manager at Dana Investment Advisors.

"That's something that Wal-Mart hasn't done recently -- guide ahead of the consensus estimate," said Friedman, whose firm manages about $2.1 billion in assets and holds about 100,000 shares of Wal-Mart stock.

But that doesn't mean investors or analysts were completely thrilled with both reports.

Flies in the Ointment

At Wal-Mart, the company continues to face problems with its operating expenses. The company's sales, general and administrative costs increased by 12 basis points as a portion of sales to 16.38%.

Company CFO Tom Schoewe blamed the rise on increasing insurance costs, including worker's compensation, higher preopening costs for the company's new stores and an increase in advertising expenses.

The company's increasing costs had their biggest effect on its namesake Wal-Mart division. While sales grew 11.3% in the division in the quarter, operating profits grew just 8.3%. In addition to the increased expenses, Wal-Mart's stores took "higher-than-normal" markdowns on its apparel lines to clear excess inventory, Schoewe said.

Those types of problems reflect ongoing trends for Wal-Mart that led Tiburon Research Group analyst Rob Wilson to expect the company to lower 2004 guidance. Wilson said he was surprised the company went in the other direction.

Last year, the company benefited from the decline of the dollar vs. other major currencies. That decline swelled the dollar value of Wal-Mart's overseas sales, adding $34 million to the operating profits of its international units in the fourth quarter alone.

The company must be expecting those gains to continue, or at least isn't factoring in a possible appreciation of the dollar this year, Wilson said.

"They are taking what I think is an aggressive stance for next year," he said. "We'll see how this plays out." (Wilson doesn't hold Wal-Mart shares, and Tiburon doesn't do investment banking.)

At Target, while Mervyn's and Marshall Field's both improved in the quarter, they still served as a drag on the company's overall results. While Target's namesake stores posted same-store sales gains of 6.1% in the quarter, its overall same-store sales grew by 4.9%, brought down by the slower growth at Marshall Field's and a 4.7% decline in same-store sales at Mervyn's.

Pretax operating profits grew 16% at Marshall Field's in the fourth quarter over the same period last year. But pretax operating profits fell 3% at Mervyn's in the fourth quarter. For the full year, pretax profits fell 33% at Mervyn's and 21% at Marshall Field's.

Those overall trends indicate that Marshall Field's fourth-quarter results may be just an anomaly, said Friedman, whose company doesn't own Target shares.

"They're spending way too much time trying to turn them around," he said. "Why not get rid of them and focus on your core brand? Even if they do see a turnaround, it will matter, but it won't matter that much."

The problem for Target is that it may be in a no-win scenario with the two chains: It probably needs to keep investing in the companies regardless of whether it eventually sells them. If it doesn't invest in them, they'll continue to drag on its earnings and be less attractive to prospective buyers.

Both companies have likely hit bottom after going through the economic slowdown and will likely see their results improve going forward, said Ryan Erickson, a portfolio manager at Holt-Smith & Yates.

"I hope they can fix Mervyn's and Marshall Field's enough so they don't drag on the

overall Target story," said Erickson, whose firm manages about $1.5 billion in assets and about $66 million worth of Target shares.

But the department store chains weren't the only question at Target. Revenue from the company's credit card operation grew just 2% year over year in the quarter, far off the company's overall 11% revenue growth.

Target's Scovanner said the revenue grew in line with the company's expectations. But the rate of revenue growth could be a concern, considering that the company still is recording a high rate of write-offs for bad debt. Such write-offs increased 18% year over year to $131 million in the quarter.

As a portion of receivables, write-offs accounted for 9.2% of the company's Target Visa receivables and 7.3% of the company's proprietary card. In the year-ago period, write-offs accounted for 7.3% of the Visa receivables and 8.4% of the much smaller proprietary card receivables.