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Wal-Mart 3Q profit rises; pressure still on in U.S.

- Associated Press - Tuesday, November 16, 2010

NEW YORK (AP) — Wal-Mart Stores Inc. reported a 9.3 percent increase in third-quarter net income as the world's largest retailer benefited from cost controls and a robust international business. The company also raised its full-year profit outlook.

The improvements come despite weakness at its U.S. business. Total revenue at U.S. Walmart stores fell as fewer customers visited and spent less when they did. Revenue at stores open at least a year also fell, for the sixth quarter in a row, underscoring the challenges of its U.S. business as many customers struggle economically.

Still, Wal-Mart, armed with free shipping deals and low prices on such basics as socks and underwear, remained upbeat about the holiday season and said restocking grocery items it had stopped carrying is starting to pay off. It also maintained it expects revenue at stores open at least a year to turn positive in the critical fourth quarter.

Shares rose almost 2 percent, or 95 cents, to $54.90 in late morning trading.

"Our own surveys and the reports on the recent U.S. election cycle indicate that financial uncertainty still weighs heavily on everyday Americans, including many of our core customers," President and CEO Mike Duke said in a prerecorded address to investors. "Whether it's for everyday groceries, or for discretionary items, Walmart U.S. will be the price leader throughout the holidays, and I remain confident about improving [comparable store sales] trends in the fourth quarter."

Many analysts believe that Wal-Mart is facing an uphill battle to improve its U.S. business substantially for holiday season.

"It's going to be a stretch to get that positive number," said Ken Perkins, president of RetailMetrics, a research firm. "There's a lot of intense competition" from different chains, including dollar-store chains.

Wal-Mart posted net income of $3.44 billion, or 95 cents per share, in the quarter ended Oct. 31. That's up from $3.14 billion, or 81 cents per share, in last year's third quarter.

Excluding a tax benefit, the company earned 90 cents per share, which matched estimates from a survey of analysts surveyed by Thomson Reuters.

Revenue reached $101.24 billion, below the estimate of $102.25 billion.

Revenue at stores open at least a year slipped 0.7 percent, dragged down by a 1.3 percent drop at U.S. Walmart stores. The decline, which excluded fuel sales, is worse than analysts' estimates for a 0.4 percent decrease. The measure rose 2.4 percent at its Sam's Club chain.

Wal-Mart benefited during the recession as affluent shoppers traded down to cheaper stores, but its main customers have been under increasing financial stress amid an unemployment rate that's still stuck at almost 10 percent.

"[Shoppers] are focusing on necessities and being practical in how they're spending their money," said Tom Schoewe, Wal-Mart's chief financial officer, during a call with the media on Tuesday.

Wal-Mart's merchandising missteps also have hurt its U.S. business, and the company is scrambling to rectify those mistakes. That includes restocking thousands of grocery items eliminated as a part of a campaign to declutter its stores last year. Executives said Tuesday the company already seeing improving sales after expanding its assortment of pie fillings and jams. It's also going back to everyday low-pricing strategies after steep rollbacks failed to excite frugal shoppers.

Wal-Mart is also stocking more $1 items and mini-size products such as detergent at the end of the month as it has felt pressure from dollar stores, where financially strapped shoppers turn when they have only a few dollars left.

Bill Simon, president of Walmart's U.S. business, reiterated that the strategies are all aimed at getting its customers with household incomes of under $70,000 to spend more. That group represents 68 percent of its business, and these customers spend about 22 percent of their disposable income at Walmart, so "there remains lot of opportunity," Mr. Simon said.

Wal-Mart said it expects revenue at stores opened at least a year for its U.S. Walmart business to be anywhere from down 1 percent to up 2 percent in the fourth quarter. Mr. Schoewe told reporters they should focus on the midpoint of that range.

Wal-Mart predicts that earnings per share for the fourth quarter will be in the range of $1.29 to $1.33. Analysts had predicted $1.28 per share. The company also predicted full-year earnings per share ranging from $4.08 to $4.12 per share. That's up from $3.95 to $4.05 per share. Analysts expected $4.02.

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