- The Washington Times - Wednesday, February 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 over the holidays 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 yesterday 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 H. Lee Scott Jr. said after releasing results.

Mr. 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 Thomas M. 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,” Mr. 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 ended Jan. 31 of $3.30 to $3.43, or growth between 4.4 percent and 8.5 percent, compared with just more than 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 therefore had set a midpoint in its forecast range that was short of the consensus but called it “a prudent move given today’s challenging environment.”

Wal-Mart shares rose 22 cents to $49.66, still near the top of their 52-week range of $42.09 to $51.48.

Analysts said Wal-Mart has several unique factors, including the scale of its grocery business that can bring traffic to 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 from 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,” Ms. Edwards said.

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 ended Jan. 31 rose to $4.096 billion, or $1.02 per 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.

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