Wal-Mart and Target square off for holidays

Wal-Mart and rival Target are brewing up a price war for toys, electronics and other things consumers may want for Christmas that could spell savings for shoppers, but profit woes for retailers in the critical holiday quarter.

Wal-Mart Stores Inc., the world’s largest retailer, on Tuesday promised “its most aggressive pricing strategy ever” to fuel year-end business, but warned the move could also make it miss Wall Street’s expectations for fourth-quarter earnings.

That announcement came as Wal-Mart posted an 11.5% profit increase in the third quarter, when improved merchandise mix and stricter cost controls offset weak growth in U.S. sales.

Its adversary, Target Corp., reported a 16% gain in third-quarter profit, beating analyst expectations as its sales rose 11%. President Gregg Steinhafel said the retailer would compete on long-running discounts.

Profit “ is going to be a big issue for the big box retailers,” said Ken Perkins of research firm RetailMetrics. He noted that Minneapolis-based Target would make up ground lost in digital cameras and flat-screen TVs with its trendier apparel, which has fatter profit margins.

Wal-Mart’s discounting is expected to pressure other retailers to match the cuts, a move that would erode profit margins. The most vulnerable are toy retailers and electronics chains, but moderate-price apparel chains could be affected as well, Perkins said.

Bentonville, Ark.-based Wal-Mart announced Tuesday that it slashed prices on more toys. It was the fourth time since mid-October that Wal-Mart rolled back prices on some products, moves that retailers normally reserve for after Thanksgiving.

Wal-Mart posted net income of $2.65 billion, or 63 cents a share, for the period ended Oct. 31, compared with $2.37 billion, or 57 cents, a year earlier. Net sales totaled $83.5 billion, an increase of 12%.

Excluding income from operations in Germany and South Korea that it has sold, Wal-Mart’s profit amounted to 62 cents a share. Wall Street expected a profit from continuing operations of 59 cents a share on sales of $84.48 billion.

Wal-Mart said it expected earnings per share from continuing operations for the fourth quarter to be between 88 cents and 92 cents, resulting in a full-year forecast for earnings per share of $2.85 to $2.89. In August, Wal-Mart had forecast full-year earnings per share between $2.88 and $2.95.

Analysts polled by Thomson Financial expect 92 cents a share in the fourth quarter and $2.87 in the full year.

Shares of Wal-Mart rose $1.34 to $47.66. Meanwhile, Target said it earned $506 million, or 59 cents per share, up from $435 million, or 49 cents, last year.

Revenue rose to $13.57 billion from $12.21 billion during the same period last year. Target attributed the growth to new stores, a 4.6% sales rise at stores open at least a year, and credit card revenue.

Analysts surveyed by Thomson Financial were expecting 55 cents a share on revenue of $13.59 billion.

Target shares rose $1.40 to $59.16.

In other retail earnings:

* TJX Cos., parent of T.J. Maxx, Marshalls and other retail chains, reported earnings of $230.6 million, or 48 cents a share, up from $155.3 million, or 32 cents, a year earlier. Sales rose 11% to $4.5 billion.

* Ross Stores Inc. said third-quarter profit rose to $43.9 million, or 31 cents a share, from $36.3 million, or 25 cents, a year earlier. Revenue increased 10% to $1.36 billion.

* Saks Inc. posted third-quarter profit of $6.2 million, or 5 cents a share, compared with $225,000, or break-even on a per-share basis, in the year-earlier period. Sales rose to $697 million from $645 million.