Wal-Mart Posts Gain in Profit Growth Monday November 14, 10:05 pm ET By Chuck Bartels, AP Business Writer Wal-Mart Stores Posts 3.8 Percent Gain in Profit Growth; Income Rises to $2.4 Billion
LITTLE ROCK, Ark. (AP) -- The world's largest retailer, Wal-Mart Stores Inc., posted a modest 3.8 percent in profit growth on Monday, but said it expects electronics and other general merchandise to propel it to a healthy holiday season, though spending may slacken when the bills come due early next year.
Income rose to $2.4 billion, or 57 cents per share, for the quarter ended Oct. 31 from $2.3 billion, or 54 cents per share, a year ago. Earnings in the latest quarter included three items, including hurricane related costs, which reduced results by $80 million, or 2 cents per share.
Analysts surveyed by Thomson Financial had forecast 57 cents per share.
Revenues were $76.35 billion with sales of $75.4 billion, an increase of 10.1 percent over $68.5 billion in sales for the third quarter of fiscal 2005. Sales at stores opened at least a year, known as same-store sales, rose a modest 3.8 percent. Same-store sales are considered an important measure of a retailer's health because they don't inflate overall growth from new store openings.
Wal-Mart shares rose 30 cents to close at $49.30 Monday on the New York Stock Exchange, where they have traded in a 52-week range of $42.31 to $57.89.
In a conference call with investors, Wal-Mart Chief Executive Lee Scott didn't address criticism the company has come under for labor and other practices except to note Wal-Mart's critics had some praise for the retailer's response to Hurricane Katrina.
Scott said Wal-Mart sustained sales despite the hurricanes, gasoline prices that skyrocketed in the quarter and higher home heating bills. The hurricanes -- Katrina, Rita and Wilma -- closed hundreds of Wal-Mart stores, at least temporarily, but Wal-Mart's third-quarter numbers held up.
Scott called the quarter a "pretty good performance in a difficult environment."
"I believe we will have a good holiday season," Scott said. He noted that the hurricanes would in the longer term improve employment and the economy but said January and February could be difficult months when holiday bills come due and higher heating oil and natural gas prices have a greater impact.
Analyst Dan Hess, president and chief executive of Merchant Forecast, a New York-based independent research company, agreed that Wal-Mart should do well for the holiday.
"With Wal-Mart, it's not just about the numbers and the forecast. All types of social issues play a role in the public perception of Wal-Mart," Hess said.
So far, the public is voting with its feet and is continuing to shop at Wal-Mart stores, he said.
"The issues of conscience, right now at least, appear to be affecting the stock price more than affecting sales," Hess said. "At the end of the day, Wal-Mart is taking market share away from other retailers."
"I think Wal-Mart is gaining back some momentum in general merchandise," Hess said. "Their push toward electronics is going to be successful."
After a slow start to the Christmas season last year, Wal-Mart has promised to be more aggressive with discounts and its push to get shoppers to buy early for the holiday 2005 season. The company launched its holiday advertising campaign on Nov. 1, a few weeks earlier than last year.
Wal-Mart forecast fourth-quarter earnings of 82 cents to 86 cents per share, $2.64 to $2.68 for the year. Analysts surveyed by Thomson Financial forecast quarterly income of 84 cents per share and $2.64 per share for the year.
Same-store sales are forecast to rise between 3 percent and 5 percent for the fourth quarter, Chief Financial Officer Tom Schoewe said.
Vice chairman John Menzer said customers are starting to see stores that are less cluttered, part of a restructuring that is putting a focus on "close-to-the-customer decision making."
Kurt Barnard, president of Barnard's Retail Forecasting in Nutley, N.J., said he expects the company to make greater inroads in fashion with its George and new Metro7 lines. Wal-Mart is also selling shoes made by Nike under the Starter brand.
Still, Candace Corlett, a principal at retail consulting firm WSL Strategic Retail said Wal-Mart will have to make a special effort for its apparel lines to be a success, something that will take longer than this holiday season.
"You can't treat apparel like underwear and socks, especially if it is fashionable clothing," Corlett said. "You've got to present an image, and that's what (Wal-Mart is) not so good at."
"Do they have the brilliance to do that? Absolutely. Will they? I don't know," Corlett said. "Apparel aside, the shopability of a Wal-Mart store has become a real issue."
For the first nine months of the year, Wal-Mart earned $7.6 billion, or $1.82 a share, versus $7.1 billion, or $1.66 a share, a year ago. Nine-month sales rose to $223.2 billion from $203 billion a year ago.
