Wal-Mart cautious on holiday earnings

Wal-Mart posted better than expected third quarter earnings but its outlook for earnings and sales gains in holiday period was cautious.

NEW YORK (CNNMoney.com) -- Wal-Mart Stores posted better-than-expected third-quarter earnings Tuesday but offered a cautious outlook about the fourth-quarter, which includes the all-important holiday shopping period.

The world's largest retailer earned $2.9 billion, or 70 cents a share, from continuing operations, up from $2.6 billion, or 62 cents a share.

Earnings per share from continuing operations were aided by a 1 cent-a-share after-tax gain, Wal-Mart said.

Analysts surveyed by earnings tracker Thomson First Call had forecast earnings of 67 cents a share in the third quarter, which ended Oct. 31.

Total sales jumped 8.8 percent to $90.8 billion.

In a recorded call to discuss the retailer's results, Wal-Mart CEO Lee Scott attributed the higher profits to tighter inventory management and expense controls in its U.S. stores.

"Our results for the third quarter reflect the improved performance of our U.S. operations. Both Wal-Mart Stores U.S. and Sam's Club increased profits faster than sales," Scott said. "Our focus on managing inventory this quarter was very positive."

Scott said groceries, health and wellness, entertainment and Halloween products were the best-performing categories. Wal-Mart said its comparable sales in its pharmacy division rose 8 percent compared to the same period a year ago.

Wal-Mart's (Charts, Fortune 500) share jumped 6.5 percent in afternoon trading on the New York Stock Exchange.

Investors were likely pleased that Wal-Mart's profit margins held up in the quarter despite the retailer chopping prices on its holiday merchandise almost a month earlier than last year.

Wal-Mart slashed prices on 15,000 toys on Oct. 1, followed by a second round of deep discounts later in the month.

"During the past few months we prepared for a challenging macroeconomic environment," Scott said. "But I feel that we are well-positioned to win in the fourth-quarter."

The fourth quarter is a critical period for retailers since November-December gift-buying can account for as much as 50 percent of merchants' annual profits and sales.

"Christmas is just around the corner," Scott said.

Wal-Mart U.S.A. CEO Eduardo Castro-Wright picked electronics as a hot category for the holidays.

"Electronics will be strong, especially TVs, GPS devices, digital cameras, videogames and computers," Castro-Wright said during the call.

He said TV sales were up 110 percent in the quarter over last year while laptop computer sales increased 80 percent over the same period last year.

Wal-Mart said that it now expects fourth-quarter earnings to come in between 99 cents to $1.03 a share and its total quarterly sales to cross $100 billion for the first time in the retailer's history as a public company.

That range is still mostly below the consensus First Call EPS forecast of $1.02 for the period.

Wal-Mart expects sales at U.S. stores open at least a year, a closely watched retail measure known as same-store sales, to be between flat to up 2 percent in the quarter, after being up 1.5 percent in the just completed period.

Still the company said it is looking for full-year EPS of $3.13 to $3.17, which would top the current forecast of $3.09 a share from First Call.

Elsewhere, Wal-Mart said its international sales surged 16.9 percent to $22.4 billion, as strength in sales at its stores in China, Brazil and Argentina offset weakness in its Mexico operations.

Wal-Mart (Charts, Fortune 500), a component of the Dow Jones industrial average, has seen shares fall 6 percent over the last three months, although that puts it ahead of shares of some other major discount retailers such as Target (Charts, Fortune 500), where shares are off 9 percent, and Sears Holding (Charts, Fortune 500), where shares lost 13 percent.

But Wal-Mart shares have lost ground to some other low-priced retailers such as Costco (Charts, Fortune 500), which has seen shares gain 6 percent.

-- CNNMoney.com senior writer Chris Isidore contributed to this report.