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VOL. 123 | NO. 224 | Friday, November 14, 2008

Wal-Mart Posts Higher Q3 Profit, But Cuts Outlook

By ANNE D'INNOCENZIO | AP Retail Writer

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NEW YORK (AP) 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.

Total sales for the quarter rose 7.4 percent to $98.64 billion from $91.86 billion a year earlier. Analysts surveyed by Thomson Reuters expected earnings of 76 cents per share on sales of $98.28 billion.

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 as well as marketing, such as its “save money, live better” campaign, Wal-Mart has been able to pull ahead of competitors such as Target Corp. Wal-Mart shares have risen 21 percent in the past 52 weeks, while Target’s have lost 40 percent of their value and J.C. Penney Co.’s have shed almost 60 percent in the same period.

Sales rose 7.3 percent at Wal-Mart’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 expects 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 percent 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.

Copyright 2008 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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RECORD TOTALS DAY WEEK YEAR
PROPERTY SALES 0 218 10,440
MORTGAGES 0 293 13,620
FORECLOSURE NOTICES 0 68 2,712
BUILDING PERMITS 0 393 24,700
BANKRUPTCIES 0 184 10,076
BUSINESS LICENSES 0 62 3,798
UTILITY CONNECTIONS 0 338 14,895
MARRIAGE LICENSES 0 68 3,235

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