Wal-Mart Sees Profit Down as Much as 11%

Signaling an end to its streak of 99 consecutive quarterly increases, Wal-Mart Stores Inc. said Wednesday that it expects fourth-quarter earnings to drop as much as 11%.

Wal-Mart, the nation’s largest retailer, attributed the decline to weak holiday sales, higher operating expenses and profit-thinning price cuts.

Wal-Mart’s announcement is the latest sign of troubled times in the retailing industry. Retailers reported that holiday sales increased less than 2%--the worst season in a decade. Wal-Mart’s December sales rose only 1.1% compared with the same period in 1994.

The discount chain’s earnings expectations are important because Wal-Mart’s status as the nation’s sales leader makes it a barometer for the industry. Rising concern about Wal-Mart and other retailers was reflected on Wall Street in the wake of the announcement.

Wal-Mart shares fell $2.125 to $20.375--their lowest level since 1991--in extremely heavy trading of 16.5 million shares on the New York Stock Exchange. (See Stock Watch, D6.) Other major retail stocks also declined, including J.C. Penney, Sears and Dayton Hudson, operator of the Mervyn’s and Target stores. Dayton Hudson fell $2.625 to $70.50, J.C. Penney lost 87.5 cents to $45.125, and Sears dropped $2.50 to $40. Meanwhile, Standard & Poor’s general retail index fell 7.7%.

“Most retailers would rather forget 1995,” said David Liebowitz, an industry analyst at Burnham Securities in New York. “Wal-Mart’s announcement shows that this downturn is pervasive.”

Indeed, some analysts began to lower their expectations of other retailers’ earnings in the wake of Wal-Mart’s statement. For example, Robert Buchanan of Natwest Securities in New York said he was lowering earnings expectations for nine of the 19 retail companies he follows closely.

Wal-Mart will report its actual fourth-quarter earnings Feb. 27. In its statement Wednesday, it said its earnings should be in the range of $920 million to $970 million for the quarter, which ends Jan. 31.

Despite the profit decline, Wal-Mart said it will maintain its previously announced expansion plans. In July, the company said it planned to open 50 to 100 stores in California over the next five years.

“That estimate was based on our belief that there are opportunities in California--and that still holds true,” company spokesman Keith Morris said.

Nearly 90 of Wal-Mart’s 1,986 discount stores are in California, 25 of them in Southern California. While industry analysts say there is a glut of stores, most say Wal-Mart can generate needed sales growth by opening stores in areas underserved by discount chains.

“Expansion is not the problem,” said Walter Loeb of Loeb Associates in New York. “Price competition is the problem. Kmart was a very aggressive price cutter in December, and Wal-Mart was forced to keep pace.” However, some analysts believe the price-cutting competition among discount chains may intensify and force Wal-Mart and Kmart to close unprofitable stores in 1996.

“There may be a shakeout in discount retailing,” said Richard Nelson. “The performance of stores in locations with nearby competition will be scrutinized and Wal-Mart will have to keep overall costs down.”