Wal-Mart Stores posted better-than-expected fourth quarterly profit Tuesday as penny-pinching U.S. shoppers scoured its discount stores for low prices on necessities like food to offset tough economic conditions.
For its current quarter, the world's largest retailer expects sales at its U.S. stores open at least a year, a key retail gauge known as same-store sales, to be flat to up 2 percent, due to the "challenging" economic environment. It also forecast first-quarter earnings that could possibly come in below analysts' expectations.
Joseph Feldman, an analyst with Telsey Advisory Group, said that given the tough climate, where many U.S. retailers have cut their sales or earnings forecasts as shoppers rein in spending, providing an earnings forecast near Wall Street's expectations was "perfectly fine."
"Wal-Mart is perfectly positioned for this type of environment," he said. "They've got a lot of consumable items, like groceries, so they're going to drive traffic and maybe even get additional traffic because of this environment."
Net income rose 4 percent to $4.096 billion, or $1.02 per share, for its fiscal fourth quarter ended Jan. 31, from $3.94 billion, or 95 cents per share, a year earlier.
The most recent quarter's results included charges of 3 cents per share for dropped real estate projects and a restructuring charge for its Japanese operations, and a 1 cent per share benefit from the sale of real estate properties.
Excluding the items, Wal-Mart reported earnings of $1.04 per share, above analysts' average estimate of $1.02 per share, according to Reuters Estimates.
Shares rose 1.1 percent to $50.00 in morning New York Stock Exchange trading.
Getting Sales on Track
Wal-Mart spent most of last fiscal year working to improve sales at its U.S. stores after efforts in 2006 to downplay its discount roots and stock of cheap but trendy clothes and home goods backfired with its shoppers, who were looking for basic merchandise.
Last year, it cleared out the poor selling merchandise and then cut prices earlier than ever for the holiday season, hoping to win back sales from its lower-income shoppers, who are feeling the pinch of higher food and fuel costs, and the downturn in the housing market.
Sales for the quarter rose to $106.27 billion from $98.09 billion. Sales in its international division jumped almost 19 percent to $27.01 billion, while sales in its namesake discount stores rose 5 percent to $67.43 billion.
Sales at its U.S. stores open at least a year rose 1.7 percent in the quarter, compared with a rise of 1.6 percent a year ago, as shoppers headed to its stores for groceries, health care items and electronics.
Same-store sales at its Wal-Mart stores rose 1.6 percent, while they advanced 2.5 percent at its Sam's Club warehouse divisions.
It said customer traffic continued to decline in its U.S. stores, but at a slower rate in the fourth quarter than at the beginning of the year.
Sales in its struggling apparel business are improving, and it said it is working to add more brand names and licensed products to its stores. The retailer is hoping to improve sales in its home category by the second half of the fiscal year.
Consumer Grow Cautious
While its fourth-quarter results were stronger than Wall Street forecast, Wal-Mart said this year's economic environment and inflationary pressures will present challenges.
"We know that the economy remains a critical factor in this new fiscal year," said CEO Lee Scott in a statement. "Customers were more cautious in their spending in January."
For the current fiscal year, which began Feb. 1, Wal-Mart warned that fuel costs could be a potential headwind if they continue to rise beyond projections.
It also said that it continues to monitor inflationary pressures in dairy, meat and bread in its core food business.
Chief Financial Officer Tom Schoewe said in an interview the retailer is trying to offer the best "relative" price -- making sure that even as its prices are increasing, they are still below those of their competitors.
With first-quarter U.S. same-store sales forecast to be flat to up 2 percent, Schoewe said it would be "fair" to expect U.S. same-store sales to continue around that pace for the full year.
For the first-quarter, it forecast earnings of 70 to 74 cents per share. Analysts, on average, have been expecting earnings of 73 cents per share for the first quarter.
For the full-year it expects earnings of $3.30 per share to $3.43 per share, compared with analysts' expectation for earnings of $3.42.