Wal-Mart Expects to Be Cheered by Season

Wal-Mart Stores Inc. said Monday that despite consumer caution, this holiday season should be a relatively merry one for the world’s largest retailer. But neither the company nor investors are celebrating just yet.

In reporting its fiscal third-quarter earnings, Wal-Mart noted that shoppers mostly were buying cheaper items and that sales had been rising at the beginning and middle of the month, when most people get paid -- meaning that customers may be wary of overspending and don’t have a lot of extra cash.

What’s more, although sales have ticked up each quarter since the beginning of the year, some of those gains have come because of easy comparisons with last year’s lower revenue.

Sales at stores open at least a year rose 6.1% during the quarter, but shoppers’ buying enthusiasm seemed to wane toward the end of the period, with August clearance driving the most sales and October’s warm weather ringing up the fewest purchases, the company said.

Total sales for the quarter rose 10.1% from a year earlier.

“I believe this holiday season will be better than the last,” said Wal-Mart Chief Executive H. Lee Scott Jr. on a recorded call. “We’ve seen more positive momentum this year ... but the consumer still seems to us to be very cautious and probably will remain so, until we see further improvements in employment.”

To avoid a repeat of last year’s disappointing holiday results, Wal-Mart began its seasonal ad blitz earlier this year, with celebrity-laden commercials that began airing Nov. 1. The company also vowed to lure wealthier customers, who wouldn’t be affected as much by higher heating and gas prices, with big-ticket items.

For the three months ended Oct. 31, Wal-Mart reported net income of $2.4 billion, or 57 cents a share, up 3.8% from $2.3 billion, or 54 cents, a year earlier. Analysts surveyed by Thomson Financial had forecast 57 cents a share on average. Revenue was $75.4 billion, compared with $68.5 billion a year earlier.

The Bentonville, Ark., company projected a 3% to 5% same-store sales gain for November and December. Sales during the fourth quarter last year showed a 3.3% gain year over year.

Wal-Mart shares rose 30 cents to $49.30.

While Wal-Mart was boosting confidence Monday, rival Target Corp. damped expectations.

The Minneapolis-based company said its year-over-year sales growth for November might fall short of the previously forecast 4% to 6%.

Target shares fell more than 4% after hours to $55.90, after closing at $58.43, off 2 cents, in regular trading.

Although some on Wall Street said Target’s troubles could be a result of competition from Wal-Mart, HSBC Securities analyst Mark Husson said it could be a more realistic assessment of the tough holiday season to come.

“Before the battle really starts, talking yourself into a positive frame of mind is exactly the right thing for leaders to do,” Husson said, referring to Wal-Mart’s stance. “And there’s a bit of self-fulfilling prophecy to every paper in the country saying, ‘Wal-Mart says Christmas is going to be OK.’ I wonder whether people’s shopping behavior would change if Wal-Mart said ‘Christmas is going to be a tough, hard slog.’ ”