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Wal-Mart Holiday Forecast Light, Profit Beats

Published: Thursday, 12 Nov 2009 | 10:34 AM ET

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By: Reuters

Wal-Mart Stores posted a higher-than-expected quarterly profit, but forecast earnings during the key holiday quarter that could miss Wall Street estimates as its customers face rising unemployment.

Wal-Mart [WMT Loading... () ], whose shares rose about 1 percent in early trading, is defending its title as the low-price leader ahead of the holidays, a strategy that could also weigh on results.

It has repeatedly sparred with rivals from Amazon.com [AMZN Loading... () ] to Target [TGT Loading... () ] in slashing prices for items ranging from toys to books.

Executives at the world's largest retailer said on Thursday that its shoppers were still worried about the U.S. economy, including double-digit unemployment levels, despite signs the country was returning to growth.

"Customers continue to tell us they're concerned about their own finances and unemployment," Wal-Mart U.S. chief Eduardo Castro-Wright said on a prerecorded call. "We recognize that some customers may be more cautious in their holiday spending."

A report by the U.S. government showed the number of workers filing new claims for jobless insurance fell to the lowest since January, pointing to improvements in the labor market.

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Wal-Mart forecast earnings per share of $1.08 to $1.12 from continuing operations for the fourth quarter ending Jan. 31.

Analysts on average were expecting profit of $1.12 per share, according to Thomson Reuters I/B/E/S.

It also expects U.S. comparable-store sales for the 13 weeks that will end Jan. 29, 2010, and include the busy holiday shopping season to be flat to plus or minus 1 percent. A year ago, its U.S. comparable store sales rose 2.4 percent in that period.

Sanford Bernstein analyst Colin McGranahan said the forecast was probably conservative and Wal-Mart could yet deliver results that exceed those numbers.

"They are kind of in the driver's seat, and they've made it very clear they will be aggressive," he said. "They will be driving down prices ... We may see a little less gross margin expansion going forward."

Lower Inventory Helps Fuel Profit Rise

Profit for the third quarter that ended Oct. 31 rose to $3.23 billion, or 84 cents per share, from $3.14 billion, or 80 cents per share, a year earlier. Analysts expected 81 cents a share.

Wal-Mart had forecast earnings from continuing operations of 78 cents to 82 cents per share.

Chief Executive Officer Mike Duke cited increased productivity and improved inventory management for the better-than-forecast result. Castro-Wright said inventory in its U.S. Walmart stores was down 6.2 percent — or the equivalent of reducing inventory by $1.8 billion in its stores and distribution centers in the last 12 months.

Walmart has been stocking less merchandise as part of its Project Impact initiative — trying to make stores easier to navigate by reducing clutter and widening aisles.

Sales rose 1.1 percent to $98.67 billion, while analysts were expecting $99.88 billion.

Total U.S. comparable-store sales slipped 0.4 percent, with sales rising 0.1 percent at its Sam's Club warehouse division but falling 0.5 percent in its Walmart stores. It had forecast U.S. same-store sales to be flat to up 2 percent.

Castro-Wright said price deflation was "well beyond" what Walmart expected in many categories, including electronics. Sam's Club CEO Brian Cornell said his division had to contend with falling prices in key categories such as dairy, produce and electronics.

Duke said the company was encouraged by shopper traffic in its stores and market-share gains. The company said it had gained market share in the United States, Britain and Mexico.

The company also posted a 9 percent rise in quarterly underlying profit at its international businesses, outperforming its U.S. operations with strong growth in Britain, Mexico and Brazil.

Wal-Mart shares rose in early New York Stock Exchange trading.