Wal-Mart’s low-price focus boosts earnings

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% rise in fourth-quarter profit.

The world’s largest retailer, emerging from a yearlong turnaround effort after sales stumbles in 2005 and 2006, said Tuesday 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 Lee Scott said.

Scott said Wal-Mart’s decision to reemphasize 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 Tom Schoewe said Wal-Mart expected a spending boost as consumers received 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,” 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 ends Jan. 31 of $3.30 to $3.43, or growth of 4.4% to 8.5% compared with just over 8% in fiscal 2008. The analyst consensus was for $3.43, according to Thomson Financial. Shares of Bentonville, Ark.-based Wal-Mart rose 22 cents to $49.66, still near the top of their 52-week range of $42.09 to $51.48.

As major U.S. retailers report their fourth-quarter earnings, 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 income in the quarter ended Jan. 31 rose to $4.096 billion, or $1.02 a share, from $3.94 billion, or 95 cents, a year earlier. Sales grew 8.3% to $106.3 billion, helped by 18.8% international growth and 5% growth at U.S. stores.

Stores in 13 countries outside the U.S. accounted for about 25% of total company sales in the quarter, up from 23% a year earlier.

Fourth-quarter profit included a charge of 3 cents a share for dropped real estate projects and restructuring the company’s Japanese operation as well as a 1 cent a share gain from real estate sales. Minus the charges, earnings would have been $1.04 a share.

Analysts surveyed by Thomson Financial had expected profit of $1.02 a share on revenue of $106.9 billion.

Scott said Wal-Mart made progress on customer service. He cited cleaner stores, fewer out-of-stock products and faster checkout lanes.