NEW YORK (CNN/Money) -
Wal-Mart Stores Inc. reported fiscal third-quarter results Thursday that were slightly below expectations and said it sees continued weakness in consumer spending.
"The consumer still seems to us to be very cautious and probably will remain so until we see improvement in employment," Wal-Mart Chairman and CEO Lee Scott said in pre-recorded call for investors and analysts.
"I don't think consumer spending is slowing but I don't see the strength many of you in the investment community appear to see," Scott said.
Additionally, Scott said the company's gross margin, which reflects revenue less the cost of goods sold, decreased for the first time in eight quarters.
"Wal-Mart's cautious comments are warranted," said Bill Dreher, retail analyst with Deutsche Bank Securities. "Even though its problems are not company-specific, it does bode badly for the profits and sales across the retail chain in the back half of the year."
The retailer logged operating income of $2 billion, or 46 cents per share, in the period ended Oct. 31, up from $1.8 billion, or 40 cents a share it earned a year earlier.
But analysts surveyed by earnings tracker First Call had a consensus forecast of 47 cents a share, with estimates ranging from 46 to 48 cents.
Scott told investors the company had clearly signaled what it expected for earnings in the quarter when it said last month that it was in the middle of its earlier guidance range of 45 to 47 cents a share for the period.
"It shouldn't have taken a calculator to come to the conclusion that 46 cents a share was the most likely outcome for the quarter," he said. "It was good we achieved these results even though October was the weakest in the period."
Scott said much of Wal-Mart's (WMT: down $2.01 to $55.95, Research, Estimates) gain was due to the comparison with relatively weak year-earlier results
The company said it now expects fourth-quarter earnings of 63 to 65 cents a share. First Call's forecast is 65 cents, with a range of 62 67 cents. But Chief Financial Officer Tom Schoewe said the fourth quarter guidance should bring full-year earnings to between $2.03 and $2.05, which he said is at the upper end of the range of its earlier full-year guidance of $2 to $2.05.
Analysts estimate full-year profit at $2.05 a share, according to First Call.
"This penny up, penny down thing is silly," said Ulysses Yanas, analyst with Buckman Buckman & Reid, referring to Wal-Mart's results. "Wal-Mart is doing well. Even though they are cautious , I think the company will do better in the fourth quarter because of a much slower quarter last year.
Added Yanas,"Wal-Mart's trajectory of comparable sales this year has trended higher than last year, and even on the employment level things are improving. So I expect Wal-Mart may beat expectations for the holiday quarter."
Dreher isn't so sure. "The average consumer is concerned about jobs, a liquidity crisis, higher gasoline prices and doesn't believe he will benefit from the stock market. Wall Street is showing irrational exuberance with upbeat holiday forecast. Right now it's the easier comparisons that are driving earnings estimates. I think these estimates will start coming down now, especially with these comments from the retail bellwether."
Added Dreher, "Even though Wal-Mart is definitely in a better position than most retailers to absorb any shortfalls, others could be in for a very tough period ahead."
Kurt Barnard, an independent retail consultant, agreed.
"Wal-Mart's news is a very big deal," Barnard said. "There's no doubt that a significant number of consumers are shopping paycheck to paycheck. Most are also waiting for price reductions because they know that the support of another tax rebate or tax reduction is unlikely. So saying that the consumer is still cautious is a good indicator that the holiday season will only be moderately better than last year."
Wal-Mart's total revenue for the quarter was $62.5 billion, up 13.1 percent in the period, topping the First Call forecast of $62.3 billion. Sales from stores open at least a year, a closely watched retail measure known as same-store sales, rose 6.1 percent for the quarter, with same-store sales at its Wal-Mart division up 5.7 percent, while same-store sales climbed 8.0 percent in its Sam's Club wholesale stores unit.
Additionally, Wal-Mart expects November comparable-store sales to be up between 3 and 5 percent.