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Wal-Mart Surprises with Strong Profit, Sales

Reuters
Tuesday, 13 Nov 2007 | 7:52 AM ET

Wal-Mart Stores Tuesday reported a higher-than-expected 8 percent rise in quarterly profit, helped by tighter control on expenses and efforts to draw customers into its U.S. stores earlier than ever for holiday shopping.

CNBC.com

The world's biggest retailer said net income rose to $2.86 billion, or 70 cents per share, in the third quarter ended Oct. 31 from $2.65 billion, or 63 cents per share, a year earlier.

The latest results included a tax benefit of 1 cent per share from the sale of real estate.

Analysts on average were expecting a profit of 67 cents per share excluding the gain, according to Reuters Estimates.

"These earnings numbers are actually pretty encouraging," HSBC Securities retail analyst Mark Husson told CNBC. "If you look across where they've made their money, they've made it in ... Division One, USA, which has been the problem division for sales, and yet operating earnings are up in double digits."

Wal-Mart is trying to revive sales at its U.S. stores and appeal to shoppers who are feeling the pinch of higher food and fuel costs and the downturn in the housing market. In the past several weeks, it has cut prices on popular toys and 15,000 other items to try to drive shoppers to its stores for their holiday shopping.

Goldman Sachs analyst Adrianne Shapira in a research note Monday said Wal-Mart's strategy to use low prices to drive shoppers to its stores while keeping a tight control on expenses "is the right strategy for the right time as consumers tighten their belts."

Sales rose almost 9 percent to $90.9 billion. Sales in the U.S. division rose 6.4 percent to $57.65 billion while sales in the company's international operations rose almost 17 percent to $22.4 billion.

Wal-Mart Reaction
A look at Wal-Mart earnings, with Mark Husson, HSBC Securities retail analyst and CNBC's Joe Kernen

Chief Executive Officer Lee Scott on a recorded call said Wal-Mart's grocery, health and wellness, and entertainment businesses are performing strongly. He said the retailer is seeing "improving trends" in its struggling home and apparel businesses.

Fourth Quarter Forecast

The company forecast earnings per share from continuing operations of 99 cents to $1.03 for the fourth quarter and $3.13 to $3.17 for the full year.

The outlook includes a restructuring charge of $40 million after tax in the fourth quarter for the company's Japanese operations. Wal-Mart said last month it would acquire the remaining shares of its Japanese supermarket subsidiary, Seiyu.

Analysts on average are expecting fourth-quarter earnings of $1.01 and full-year earnings of $3.09, according to Reuters Estimates.

Shares of the Bentonville, Arkansas-based company were down roughly 6 percent year to date through Monday, while smaller rival Target had fallen less than 1 percent.

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