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Wal-Mart edges past target
No. 1 retailer beats forecast by 1 cent a share for holiday earnings period; tempers outlook.
February 17, 2005: 12:38 PM EST

NEW YORK (CNN/Money) - Wal-Mart Stores Inc. the world's biggest retailer, weathered a difficult holiday period to post a solid increase in fourth-quarter profit Thursday that was a little above analysts' expectations.

Wal-Mart (Research) earned $3.16 billion, or 75 cents per share, for the period ended Jan. 31, up from $2.72 billion, or 63 cents per share, a year earlier.

Analysts surveyed by earnings tracker First Call forecast EPS of 74 cents.

The company said its sales at U.S. stores open at least a year, a closely watched retail measure known as same-store sales, were up 1.5 percent for the quarter. The company had gone into the period forecasting a same-store sales gain of 2 to 4 percent.

That gain helped lift total net sales 10.4 percent to $82.2 billion, slightly before Wall Street's consensus estimate for sales to come in at $82.8 billion for the period.

Wal-Mart admitted its performance was not as good as it had hoped.

"It was a solid performance, but we can do better," Wal-Mart CEO and President Lee Scott said in a pre-recorded earnings call. "We left a lot on the table but we have our share of opportunities and we intend to address these issues.

Same-store at low end

Total same-store sales for the year rose 3.3 percent but came at the low end of the company's forecast for a 3 to 5 percent gain. Sales for the year rose 2.9 percent for Wal-Mart Stores and were up 5.8 percent for the Sam's Club division.

Scott said Wal-Mart stores saw sales strength in the first-half of the year but lost the momentum in the second-half. "In the second-half, we weren't aggressive enough in our merchandising, especially in the mid-price point range and expenses grew faster than sales."

Additionally, Scott also blamed higher gas and energy prices for negatively impacting spending by Wal-Mart customers. However, Scott said he expects sales could benefit as prices stabilize and the economy continues to improve through the year.

For its current fiscal year, Wal-Mart said it expects first-quarter profit to come in between 56 to 58 cents a share and full year profit to be between $2.70 to $2.74 a share. Analysts forecast 58 cents a share for the first quarter and $2.73 a share for the full year, according to Thomson Financial.

The retailer noted that first-quarter earnings would be negatively impacted by the loss of day in February (as 2004 was a leap year).

Wal-Mart also cautioned that it expects same-store sales growth for the year to be closer to low end of its projected 3 to 5 percent gain for the year.

Deutsche Bank analyst Bill Dreher said he's comfortable with Wal-Mart's earnings and sales outlook.

"The company endorsed consensus analysts' estimates of a 15 percent EPS growth in the new fiscal year," said Dreher, who has a "buy" rating on the stock.

"Give Wal-Mart's struggling sales and difficult expense issues, I think that kind of forecast is impressive," he said. " Wal-Mart's doing the right things to counter-balance its expense issues with better global sourcing opportunities."

He's also optimistic that Wal-Mart shares, which currently are trading near their 52-week low, could again shift gears to the upside if spending picks up particularly among Wal-Mart's low-end consumers.

Said Dreher, "Wal-Mart's EPS growth is twice that of the S&P. For the third consecutive year it has seen an increase in operating margins and we believe it still has tremendous growth opportunity over the next 5 to 10 years both domestically and abroad. At the very least, this should allow the stock to come off the low-end of the trading range and move higher."  Top of page


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