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Wal-Mart predicts earnings increase

Wed., Feb. 20, 2008

Defying the gloom that many retailers are feeling, Wal-Mart Stores Inc. expects a more profitable year selling to penny-pinching shoppers after its renewed focus on low prices paid off with a 4 percent rise in fourth-quarter profit.

The world’s largest retailer, emerging from a yearlong turnaround effort after sales stumbles in 2005 and 2006, said Tuesday that aggressive holiday discounts and improvements in its more than 4,000 U.S. stores boosted sales despite consumer worries.

“No one has a crystal ball to look into the economic future, but we know the economy will be a critical factor this year,” chief executive Lee Scott said in a recorded call after releasing results.

Scott said Wal-Mart’s decision to re-emphasize low prices last year came at the right time and added: “In a volatile economy, I believe we are well positioned to succeed.”

Chief Financial Officer Tom Schoewe said Wal-Mart expects a spending boost as consumers receive federal income tax rebates under the $168 billion economic stimulus plan.

“When those checks have been issued in the past, we’ve experienced (spending) either equal to or indexed a little bit higher than our overall market share,” Schoewe said. “The customer is under pressure and they want to make that dollar last as long as they can.”

Wal-Mart forecast earnings per share for the current fiscal year that ends next Jan. 31 of $3.30 to $3.43, or growth between 4.4 percent and 8.5 percent compared with just over 8 percent in fiscal 2008. The analyst consensus for full-year EPS was $3.43, according to Thomson Financial.

Goldman Sachs said in a research note that Wal-Mart had therefore set a midpoint in its forecast range that was short of the consensus but called it “a prudent move given today’s challenging environment.”

Analysts said Wal-Mart has several unique factors, including the scale of its grocery business that can bring in traffic for other areas of the store, so that its optimism for the year ahead is not necessarily an indicator for the broader retail sector.

“If I was grading them, I would give Wal-Mart a B. Unfortunately the rest of retail is getting a C-minus. So on the bell curve they look like a shining example,” said Patricia Edwards, of investment manager Wentworth Hauser and Violich, which has about 400,000 Wal-Mart shares. “They have the opportunity, especially in this type of economic environment, to really outpace the competition.”

As major U.S. retailers report their fourth-quarter earnings results, the industry is bracing for its bleakest times since the 1991 recession. Other merchants have closed stores, laid off thousands of employees, scaled back store expansions or pared inventories as consumer spending screeches to a halt.

Wal-Mart, though, said net profit in the quarter that ended Jan. 31 rose to $4.096 billion, or $1.02 a share, from $3.94 billion, or 95 cents a share, a year earlier. Net sales grew 8.3 percent to $106.27 billion, helped by 18.8 percent international growth and 5 percent growth at U.S. Wal-Mart stores.

Wal-Mart is introducing new clothing brands to revive its apparel business, which has lagged other areas of the store. New lines this year include children’s brand Grranimals and more Hannah Montana products licensed from the Walt Disney Co.


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