Wal-Mart earnings up, but forecast cut

No. 1 retailer tops analysts' earnings expectations but trims full-year forecast due to currency-related issues.

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By Parija B. Kavilanz, CNNMoney.com senior writer

Reaching U.S. consumers
Where will you do most of your holiday shopping?
  • At a mall
  • At a discount store
  • Online
  • Won't be shopping

NEW YORK (CNNMoney.com) -- Wal-Mart Stores, the world's largest retailer, reported third-quarter profit Thursday that topped estimates but said a stronger dollar would squeeze profit for the rest of its year.

Wal-Mart (WMT, Fortune 500) shares were down about 46 cents to $52.16 on the New York Stock Exchange.

One retail analyst said Wal-Mart news was "mostly good."

"There's not a lot to be upset about," said Dan Binder, analyst with Jeffries & Co.

"[Wal-Mart] beat guidance, their gross margins were strong in the quarter and they are upbeat about the holiday season," he said.

Regarding Wal-Mart's lower guidance for its full-year and fourth-quarter profit, Binder said the stronger dollar would also be a problem for other retailers who have sizeable international operations.

"The currency issue is a headwind but at least we know that the softer guidance from Wal-Mart is not due to any fundamental business problems," he said.

The Bentonville, Ark.-based company logged operating income of $3.03 billion, or 77 cents a share, up from $2.85 billion, or 70 cents a share, a year earlier.

Including a gain from discontinued operations, net income in the latest quarter was $3.14 billion, or 80 cents a share, up from $2.86 billion, or 70 cents, in the prior year.

Revenue rose 7% to $97.63 billion from $90.82 billion.

Analysts had forecast a profit of 76 cents on sales of $98.42 billion, according to analysts surveyed by Thomson Reuters.

For the full year ending Jan. 31, Wal-Mart (WMT, Fortune 500) lowered its earnings forecast to $3.42 to $3.46 a share based on currency-related issues impacting its fourth-quarter results.

Its full-year forecast compares with Wall Street estimates of full-year earnings of between $3.45 to $3.54 a share.

Wal-Mart said its fourth quarter profit would be negatively impacted by a stronger dollar which is hurting its international business. As a result, the company expects fourth quarter profit to be between $1.03 and $1.07 a share.

That range falls below analysts' forecast for a profit of $1.11 a share for the fourth quarter.

Difficult times benefit Wal-Mart

While the ongoing slump in consumer spending has deflated sales at most retailers, Wal-Mart continues to benefit as more budget-conscious Americans trade down in their everyday purchases.

Although October retail sales were the worst in at least eight years, Wal-Mart logged a 2.4% increase in its same-store sales, beating its own forecast.

Same-store sales, or sales at retail stores open at least a year, are an important measure of a retailer's performance. In the third quarter, the company's same-store sales rose 3% versus a 1.5% gain for the same period a year ago.

For the fourth quarter, which includes the critical holiday shopping period, Wal-Mart expects same-store sales to increase between 1% to 3%. Wal-Mart's same-store sales rose 1.7% for the same period a year ago.

"It is our time. We are well prepared at Wal-Mart," Wal-Mart CEO Lee Scott said in the company's pre-recorded call to discuss its earnings.

"Despite economic difficulties around the world, we achieved solid sales and earnings growth and we are optimistic about the upcoming holidays," Scott said. "At a time when our customer is feeling the pressure of a tough economy, Wal-Mart's price leadership is more important than ever."

The November-December holiday gift shopping months are critical to retailers because the period can account for as much as 50% of merchants' annual profit and sales.

Wal-Mart's has been especially aggressive this year with its holiday campaigns. The retailer last week announced it would be chopping prices on thousands of items over the next 7 weeks.

And for the first time, Wal-Mart will introduce a holiday gift section in its stores, executives revealed last month.

Eduardo Castro-Wright, CEO of Wal-Mart U.S.A. said during the call that sales of electronics such as GPS units, gaming systems and flatscreen TVs were already "exceeding expectations." He said grocery and clothing sales were also stronger last quarter.

"In a difficult environment, our prices are resonating with customers," he said.

-analysts interviewed for this story do not personally own shares of Wal-Mart and their firms do not have an investment banking relationship with the company.

-- CNNMoney.com staff writer Ben Rooney contributed to this report. To top of page

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