Good 3rd-Quarter Results Spell Good News For Wal-Mart

Tuesday, November 13th 2007, 11:36 am

By: News On 6

BENTONVILLE, Ark. (AP) _ A year after its worst holiday sales season ever, Wal-Mart Stores Inc. may rebound to have a good season after finding the right mix of merchandise and marketing to compliment its return to a focus on low prices.

A whiff of this already showed up when the nation's largest retailer posted third-quarter earnings Tuesday of $2.86 billion, an 8 % rise that beat Wall Street expectations.

The company earned 70 cents per share, up from 62 cents per share in the same period a year ago. The 70 cents includes an after-tax gain equal to 1 cent per share. Analysts surveyed by Thomson Financial had forecast earnings of 67 cents per share on revenue of $91.67 billion

Wal-Mart had revenue of $91.95 billion in the period ending Oct. 31, up 8.8 % from $84.47 billion a year ago.

Wal-Mart shares spiked $2.82, or 6.5 %, to $46.14 by midday Tuesday.

Retail experts say Wal-Mart's flagship U.S. stores may be in the midst of a turnaround after two years of a zigzag course between upscale and discount goods that has slowed sales growth.

Third-quarter sales at stores open at least a year, not counting fuel, were up 1.5 % in the company's U.S. stores, same as a year ago. The company expects same-store sales for the fourth quarter to rise no more than 2 %.

Michael P. Niemira, chief economist and director of research for the International Council of Shopping Centers, said an uncertain economy will send more shoppers to discounters for holiday purchases. Even if Wal-Mart's core lower income shoppers spend less, consumers with more money are likely to switch to discounters including Wal-Mart, he said.

At the same time, Niemira said Wal-Mart is working to address past problems.

``I actually think they may perform remarkably well this holiday season,'' Niemira said.

Last November, Wal-Mart reported its first negative monthly same-store sales in a decade as a push into higher-end fashion and home decor sold poorly and muddied its low-price image. For the period November through January, which includes most sales from gift cards redeemed after the holidays, same-store sales slowed to 1.3 % last year from 7.2 % in 2001/2002.

Wal-Mart's early start in this year's holiday came under a cloud when it reported October same-store sales were flat for the namesake stores, minus Sam's Clubs, on the back of unseasonably warm weather that hit sales of clothes and other seasonal goods.

However, Craig R. Johnson, president of consultancy Customer Growth Partners, said Wal-Mart has started a turnaround that is based in part on attractive prices on name-brand items in electronics and toys, two key holiday categories.

``My sense is that they are on the turnaround trail and that they will have a decent, a solid if not spectacular Christmas,'' Johnson said.

Even some Wal-Mart skeptics are coming around. Portfolio manager Patricia Edwards from Wentworth, Hauser & Violich in Seattle, which sold most of its Wal-Mart stock in 2005, said she now believes the chain is getting it right after a period of losing its edge.

Edwards said Wal-Mart is finding the right mix of merchandise that people want at competitive discount prices and doing so in remodeled stores with friendlier service. It has also changed its marketing to advertise those points, she said.

``The interesting thing is that they have it right, and they have it right at what I believe is going to be the right time,'' she said. As the housing and credit crunch squeeze middle-income consumers, they will probably stretch their dollars by trading down to discount stores, like they did when the tech bubble burst in 2000, Edwards said.

President and Chief Executive Officer Lee Scott said the company is showing improving trends in sales of home and apparel, an area in which Wal-Mart unsuccessfully sought to market to higher-income shoppers. Wal-Mart has switched back to its emphasis on price.

``During the Christmas and holiday season, our price leadership position will benefit both our customers and the company. We have set the stage for a successful fourth quarter,'' Scott said in a recorded call Tuesday.

Wal-Mart expects earnings for the fourth quarter to be between 99 cents per share and $1.03 per share. Earnings for the full year should be between $3.13 and $3.17, including a $40 million restructuring charge, the company said. Analysts project quarterly earnings per share of $1.02 and full-year profit of $3.09 per share.

Johnson from Customer Growth Partners said a good example for Wal-Mart's improved approach this year was its first round of holiday specials launched the Friday after Halloween, as several large retailers tried to jump-start consumer demand by offering early door buster specials.

Wal-Mart's specials included a Toshiba high-definition DVD player for $98.97. Johnson said it was an excellent move because it offered something people actually want at a steep discount to previous pricing upward of $250.

``These are not last-minute sales because merchandise was not moving. This was planned long in advance with the buyers to get great deals from suppliers,'' Johnson said.

Best Buy reacted by offering the same high-definition DVD player for $99.99, according to Web site Consumerist.com, and when it ran out filled orders with the more expensive successor model at the same discount price.

Johnson said that shows that Wal-Mart has not lost its impact on the rest of retail.

``Any retailer who underestimates Wal-Mart does so at its own peril,'' he said.

Other chains, like Toys R Us and KB Toys, may not match all of Wal-Mart's ``rollbacks'', but that doesn't mean they're not watching and shaping their marketing and pricing plans with some eye to the competition, said Steve Hoch, professor of marketing at the University of Pennsylvania's Wharton School.

``Part of that might be that experience has taught them that trying to fight Wal-Mart with aggressive prices is not worth it since Wal-Mart will not be undercut,'' Hoch said.