Wal-Mart posts higher 3Q profit, but cuts outlook

11/13/2008

NEW YORK Wal-Mart Stores Inc. reported a 10 percent increase in third-quarter profit Thursday but trimmed its profit outlook because of the troubled global economy and the renewed strength of the dollar.

The world s largest retailer said its renewed focus on low prices was attracting financially squeezed shoppers and that it was pleased with the results of early holiday price promotions.

The Bentonville, Ark.-based retailer said it earned $3.14 billion, or 80 cents per share, in the quarter ended Oct. 31. That s up from $2.86 billion, or 70 cents per share, a year earlier. Earnings from continuing operations were 77 cents per share.

Analysts surveyed by Thomson Reuters expected 76 cents per share.

Net sales for the third quarter were $97.6 billion, up 7.5 percent from $90.8 billion a year earlier.

Despite economic difficulties around the world, Wal-Mart has momentum as we move into the fourth quarter, the company s President and CEO Lee Scott said in a pre-recorded call to analysts. At a time when our customer is feeling the pressure of a tough economy, Wal-Mart s price leadership is more important than ever.

Wal-Mart has been one of the few bright spots in a dismal retailing world, as Americans have switched to cheaper stores and focused on necessities. The trend has only intensified since the financial meltdown in September, with Circuit City Stores Inc. filing for bankruptcy protection this week and rival Best Buy Co.

saying seismic changes in consumer behavior have created the most difficult climate the company has ever seen.

With the right mix of merchandise and marketing to enhance its renewed focus on price, Wal-Mart has been able to pull ahead of competitors like Target Corp.

Its save money, live better campaign has been resonating with customers.

Sales rose 7.3 percent at the company s U.S. division and 1.7 percent at the Sam s Club warehouse division.

The international business remains the company s fastest-growing division, with sales up 10.6 percent. But that has made it more vulnerable to fluctuations in exchange rates, such as the recent rise of the dollar.

Chief Financial Officer Tom Schoewe said the rapid changes in exchange rates in the past few weeks are expected to hurt fourth-quarter results by about 6 cents per share.

In U.S. dollar terms, strong operating performance in international may be overshadowed by these currency fluctuations, he said in a statement.

The retailer now expects earnings per share from continuing operations for the fourth quarter of $1.03 to $1.07 per share. Analysts expect $1.11 per share.

For the full year ending Jan. 31, Wal-Mart expect earnings from continuing operations of $3.42 to $3.46 per share compared to its August forecast of $3.43 to $3.50 per share. Analysts surveyed by Thomson Reuters expected $3.49 per share.

Eduardo Castro-Wright, president and chief executive of Wal-Mart s U.S. division, told analysts in the pre-recorded call that sales results of early holiday price promotions on thousands of items from toys to laptops started last week are exceeding expectations. He added that shoppers were cautious about discretionary purchases such as electronics.

But amid the difficult economy, Wal-Mart offered a modest projection for same-store sales for the fourth quarter, predicting sales at stores opened at least a year will be up from 1 to 3 percent. Same-store sales are considered a key indicator of a retailer s health. In the third quarter, Wal-Mart s same-store sales rose 3 percent.

Wal-Mart is also scaling back its store growth and capital expenditures while focusing on remodeling existing locations and creating smaller outposts. The goal is to continue to increase its cash flow to invest in its business.

The company said free cash flow the cash provided by operating activities, minus capital expenditures rose to approximately $2.0 billion for the first nine months of fiscal year 2009, compared to a deficit of $1.3 billion for the same period last year. Morgan Keegan & Co. analyst John Lawrence said in a note published Thursday that the balance sheet remains very strong with $6 billion in cash on hand.