Wal-Mart’s sales weak, but profit rises
Wal-Mart Stores Inc. on Tuesday ended one of its toughest years in more than a decade with better-than-expected profit for the holiday quarter and a fairly upbeat forecast for this year.
Even so, it finished the year with only a slight sales gain at all company stores open at least a year, 2.1%. That key measure of retail performance was the company’s slowest since it began recording same-store sales increases in 1980.
Investors, however, were buoyed by the news.
“I would not be surprised if they’re at a low point,” said Victor Hawley, portfolio manager at Los Angeles-based Reed, Conner & Birdwell, which holds about 850,000 shares in Wal-Mart worth about $42 million. “The stars may be aligned for something better than we’ve seen -- not this month, but over the next quarter or two.”
Wal-Mart shares rose $1.78 to $50.26.
The world’s largest retailer said price cuts on popular items such as electronics and toys helped drive its fiscal fourth-quarter sales while tight inventory controls helped reduce markdowns.
Wal-Mart struggled to boost sales for much of the last 18 months.
At the same time, its image has been bruised in battles with labor unions and other activists who have railed against the company’s pay, benefits and effect on local communities.
Wal-Mart has blamed sales woes on a disruptive store remodeling program and mistakes in apparel and home furnishings, which tend to be higher-margin items for discounters that compete vigorously on basic goods.
Sales at the company’s Wal-Mart stores open at least a year grew 1.9% in its fiscal year ended Jan. 31, the company reported, a pace analysts said reflected the chain’s struggles to compete against Target Corp. and others. Same-store sales at the company’s Sam’s Club warehouse stores grew 2.9%.
But investors said Wal-Mart’s ability to increase profit in spite of slower sales spoke to its ability to perform well in the future. “The market had a lot of skepticism about the fourth quarter,” said Edward Jones analyst Stephanie Hoff, who rates the stock “buy.” “But Wal-Mart was able to demonstrate that it could manage its business pretty well in the face of weak sales.”
Wal-Mart said it expected same-store sales to grow 1% to 3% in its first quarter compared with a year earlier and earnings of 68 cents to 71 cents a share.
The company forecast earnings this year to gain about 8% to 10%, or $3.15 to $3.23 a share.
Wal-Mart said net income for the fourth quarter rose 9.8% to $3.94 billion, or 95 cents a share, from $3.59 billion, or 86 cents, a year earlier. Revenue rose 11% to $99 billion.
For 2006, the company reported net income of $11.28 billion, or $2.71 a share, up less than 1%. The numbers reflect a charge of $894 million associated with discontinuing operations in Germany and South Korea.
Full-year revenue climbed 11.7% to $348.7 billion.
“Our customers benefited from low prices around this world,” said Wal-Mart Chief Executive H. Lee Scott Jr., on a prerecorded call for investors. “It is a reaffirmation of the proposition that is synonymous with Wal-Mart, saving people money, so they can live better.”