- The Washington Times - Tuesday, August 15, 2006


Wal-Mart Stores Inc. posted its first profit decline in a decade yesterday as the world’s largest retailer paid a hefty price for closing its loss-making German stores at the same time as high energy prices hit its sales and costs at home.

Chief Executive Officer Lee Scott said sales were disappointing at Wal-Mart’s U.S. stores, its largest division. Customers were making fewer shopping trips to save gas, while Wal-Mart’s own bills for fuel and utilities were up, he said.

“In the United States, customers tell us they are most concerned about gas prices,” Mr. Scott said in a recorded message. “This has been consistent every month this quarter.”

Results were still in line with expectations, and the company reiterated its guidance for the year.

But analysts questioned whether a third-quarter forecast on the low end of expectations meant the company could meet its target for the year. Wal-Mart shares fell 55 cents, or 1.2 percent, to $44.55 on the New York Stock Exchange.

The company forecast third-quarter earnings between 59 cents and 63 cents per share, compared with the average analyst estimate of 63 cents. It reiterated a full-year forecast of $2.88 to $2.95 per share, while analysts were predicting $2.92 per share.

“The quality of the quarter itself is kind of moderate. It does not look nearly as good as what we’ve seen from some of their peers as far as earnings and sales growth,” said David Heupel, a portfolio manager for Minneapolis-based Thrivent Investment Management, with $2.5 billion in assets. The large-cap growth fund within Thrivent that Mr. Heupel manages sold its Wal-Mart shares this year.

Mr. Heupel said the tepid third-quarter forecast meant Wal-Mart will have to do very well in the fourth quarter — the holiday season that is traditionally the strongest period for retailers — to make the full-year target.

“What they’re up against at this point is not only a hard place in the economy for their consumers but also the fact that they just can’t grow at the same rates as in the past,” said Patricia Edwards, a portfolio manager and retail analyst at Wentworth, Hauser & Violich in Seattle, which manages $8.2 billion in assets and holds 51,000 Wal-Mart shares.

For the quarter ended July 31, Wal-Mart posted net income of $2.08 billion, or 50 cents per share, down from $2.81 billion, or 67 cents per share, a year ago. That includes an $863 million charge for the sale of its German stores to Metro AG.

The last time Wal-Mart saw a quarterly profit drop was in 1996.

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