Wal-Mart reports surge in earnings, sales

Wal-Mart profit jumps

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Wal-Mart profit jumps

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NEW YORK (CNNMoney.com) -- Retail behemoth Wal-Mart Stores reported a surge in quarterly profit Thursday, topping Wall Street's expectations.

Shares rose 27 cents to $58.15 in afternoon trading.

The world's largest retailer said net income from continuing operations rose 9% to $3.39 billion, or 86 cents a share. That beat the 84 cents a share consensus expectation of analysts surveyed by Thomson First Call.

The Bentonville, Ark.-based company said second-quarter sales rose 10% to $101.6 billion. Wall Street had expected revenue to rise to $101.9 billion.

"The combination of solid operating performance and improved capital efficiency gave us record earnings this quarter and nearly $5 billion in free cash flow in the first half of fiscal year," Wal-Mart CEO Lee Scott said in a statement.

In the face of a slumping global economy, the company unveiled several new measures in the quarter to improve its image in the United States, including a revamped logo, a new ad campaign and a higher quality product selection.

"Wal-Mart benefited from its ability to serve shoppers during a difficult economic time," said Bernard Sosnick, an analyst with Gilford Securities. "The significant operating improvements that have taken place with regard to merchandising assortment, service and cleanliness of stores can't be underestimated."

But the retailer gave a mixed outlook. The company said it expects earnings for the current period to come in between 73 to 76 cents a share. Analysts are expecting earnings of 76 cents a share for the period.

Wal-Mart raised its earnings forecast for all of 2008 to a range of $3.43 to $3.50 a share. The midpoint of that range is slightly below Wall Street's consensus full-year earnings forecast of $3.49 a share.

Scott said the company is raising its full-year earnings guidance because of the underlying strength of Wal-Mart's operations, though he said the company will continue to face economic headwinds.

"What we see, as do many around the world, is a global economy that is difficult," Scott said on a recorded call. "Our customers represent a broad income segment, and they are all challenged today."

Scott said rising inflation, in particular, continues to put pressure on the company.

"While commodity prices have decreased recently, food inflation continues to be a factor in our markets," he said. "Certainly, high energy prices are increasing the costs of raw materials and transportation."

Wal-Mart's international sales rose 16.5% in the quarter. U.S. sales, which have lagged significantly behind sales abroad in the past few quarters, rose 8.5%. The company's warehouse operator Sam's Club posted an 8% gain in sales.

Lifted by economic stimulus checks that were mailed out to millions of Americans beginning in May, U.S. sales at stores open at least a year - a key indicator of a retailer's overall health also known as same-store sales - showed a 4.5% rise over the year-ago period. That compares to a rise of only 1.9% in the second quarter of 2007.

The retailer said its campaign to cash stimulus checks for free paid off, leading millions into its store. Between May and July, Wal-Mart said it cashed 2.9 million stimulus checks.

Though Wal-Mart (WMT, Fortune 500) recently released a weaker-than-expected 3% gain in same-store sales for July, as the stimulus boost began to wear off, it still beat rival Target (TGT, Fortune 500), which posted a 1.2% decline in same-store sales for the month.

Other major retailers will report earnings soon, including J.C. Penney (JCP, Fortune 500), Target and Sears Holdings (SHLD, Fortune 500).