Wal-Mart profit rises as U.S. stores eke out gains

By Yinmeng Liu

Wal-Mart Stores Inc. shares climbed Thursday after the world’s largest retailer, helped by growth in its e-commerce segment and improved performance at its U.S. stores, turned in stronger-than-expected third quarter results.

For the quarter ended Oct. 31, the retail giant reported net income of $3.71 billion, or $1.15 per diluted share, compared to $3.74 billion, or $1.14 per diluted share, in the year-ago period. The latest per-share result surpassed by three cents the $1.12 analysts polled by Reuters had been expecting.

Revenues for the Bentonville, Arkansas-based company also surged to $118. 08 billion, an increase of 2.8 percent from $114. 88 billion last year.

The positive results escalated investors’ confidence. In New York Stock Exchange trading Thursday, Wal-Mart shares climbed $3.74, or 4.7 percent, to close at at a new 52-week high of $82.94.

Same-store sales of the Wal-Mart U.S., or sales at stores opened at least 12 months, notched 0.5 percent upward, the first growth in comparable-store, or “comp” sales for the retailer in seven quarters.  A recent drop in oil prices is helping put more money in the pockets of Wal-Mart shoppers.

“Overall, Walmart appears to be on firmer footing, and lower gas prices are providing an important lift for the lower-income consumers heading into the holidays, especially versus a government shutdown last year,” Mark Miller, an analyst at William Blair, wrote in a research note published today.

“The highlights for the quarter include the positive comp in Wal-Mart U.S., including the strong performance from Neighborhood Markets, the 21 percent in e-commerce sales globally and the profit performances from Sam’s Club and our International business,” Wal-Mart’s CEO and president Doug McMillon said in a conference call this morning.

Wal-Mart’s third-quarter income was weighted down by a strong U.S. dollar.  Companies must convert sales they make in overseas currency back into dollars when they report their earnings, and a strong dollar lowers the value of such sales. The company said that on a constant currency basis, its net sales would have increased 3.1 percent, instead of the 2.8 percent it reported. The company said it lost about $396 million due to unfavorable foreign currency differences.

Besides the profit squeeze caused by a fluctuating currency exchange rate, Wal-Mart also cited the negative impact of organizational restructuring and costs associated with Hurricane Odile as contributing factors to its operating expenses.

Despite the solid earning performance, management at Wal-Mart lowered the retailer’s fourth quarter estimate to between $1.46 and $1.56 per share. That’s below the $1.57 analysts have been expecting. Officials noted that the new, reduced forecast includes a 3 cents per share deducted from future closing of underperforming stores in Walmart Japan.

Under an earlier strategy, Wal-Mart had been focusing on rolling out more and more of its giant “supercenters”   But as it began to lose sales to smaller format stores such as Dollar General and to the online retailer Amazon, Walmart has slashed the growth of its supercenters in favor of expanding smaller Neighborhood Market and focused on improving its e-commerce performance.

On Thursday, in a strategic move to win back consumers, the company formally ordered its managers to match prices set by Amazon and other online retailers.

Despite Wal-Mart’s better-than-expected third quarter, Walmart still faces plenty of challenges in the crucial holiday sales season that is approaching, as rival retailers race to put up promotional deals as big holidays spending season nears.

“We are enthused by our holiday sales plans across the box and online,” McMillon said, “however, we expect this holiday season to be highly competitive.”