Wal-Mart sales down, but profit grows

NEW YORK (CNNMoney.com) -- Wal-Mart Stores Inc., the world's largest retailer, said Thursday that sales at its U.S. stores open at least a year, or same-store sales fell 1.2%, in the past quarter although profit from continuing operations was at the high end of its expectations.

Bentonville, Ark.-based Wal-Mart (WMT, Fortune 500) said it earned 88 cents a share from continuing operations in the three months ended July 31 compared to fiscal second-quarter income of 86 cents a year earlier.

The result was at the high end of its own forecast range of between 83 cents and 88 cents, and topped analysts' consensus expectations of 86 cents a share.

The decline in Wal-Mart's same-store sales was unexpected, and worrisome. Analysts surveyed by Thomson Reuters had forecast an increase of 1% in the measure.

Given Wal-Mart's dominance in the retailing industry, and the fact that more than 200 million consumers shop at its stores every week, the seller is often seen as a barometer of the health of the consumer and of the economy.

And while most of its peers have been struggling to grow sales through the recession, Wal-Mart's been one of the few merchants that has actually grown its market share as more consumers across all income levels trade down in their discretionary purchases to its value prices.

From April 2008 to April 2009, Wal-Mart reported 13 straight months of same-store sales gains. The company stopped reported monthly same-store sales in May, moving to a quarterly reporting of its comparable sales.

To that end, last quarter's same-store sales decline marks the first drop in that measure for Wal-Mart in more than a year.

However, Wal-Mart executives said in a statement that the company's quarterly performance "has been good, despite headwinds from price deflation, the effects of the recession and currency exchange rates."

"Even though our comparable sales were lower than we had expected, we believe our comparable sales outperformed the retail sector almost in every place that we do business," Wal-Mart CEO Mike Duke said in the company's pre-recorded call to discuss its results.

Duke also said that Wal-Mart saw increased foot traffic in its U.S. stores last quarter.

Scott Hoyt, senior director of consumer economics with Moody's Economy.com said he's not too surprised by the drop in Wal-Mart's same-store sales.

He said Wal-Mart got a big sales lift in the same period last year from the government rebate checks that were given to consumers in an attempt to boost spending.

Wal-Mart offered free rebate cash checking in its stores in an attempt to grab a bigger share of the rebate money, a strategy that helped pump up its same-store sales 5.8% last June and up 3% in July.

"The stimulus that consumers got this year was not concentrated in one quarter but was spread out over the last nine months," Hoyt said.

Wal-Mart's revenue for the quarter decreased 1.4% to $100 billion, which the retailer blamed on the negative impact from exchange rate fluctuations. Without the currency fluctuations, Wal-Mart said its revenue for the quarter would have increased 2.7% to about $104.2 billion.

For the full year, Wal-Mart said its expects earnings per share from continuing operations come in at the range of $3.50 to $3.60, compared with its earlier forecast of $3.45 to $3.60.

The retailers expects its third-quarter earnings per share from continuing operations to be between 78 to 82 cents a share, including a three-cent negative impact from currency exchange rates.

Wal-Mart said its expects third-quarter same-store sales for the 13-week period from Aug. 1 through Oct. 30 to be between flat and up 2%. Analysts surveyed by Thomson Reuters have forecast earnings of 80 cents a share in the third quarter and full-year earnings for Wal-Mart to come in at $3.56 cents a share.