Posted on: Friday, August 13, 2004
Wal-Mart profit up 16 percent
By Shobhana Chandra and Rachel Katz
Bloomberg News Service
Wal-Mart Stores Inc., the world's largest retailer, reported yesterday that second-quarter earnings rose after it offered fewer price cuts on merchandise, including clothing.
Associated Press The retailer coped with slowing sales growth by controlling inventory and reducing the number of clearance sales. Wal-Mart chief executive H. Lee Scott said he expects increases in employment and wages in the second half to coincide with higher gasoline prices, which rose about 31 percent from last year's second quarter.
"This gasoline issue is a big deal," said Bill Dreher, an analyst at Deutsche Bank in New York, who rates Wal-Mart shares a "buy" but doesn't own any.
"It's limited the top line, but they've done a great job expanding gross margin."
Net income at Wal-Mart amounted to 62 cents a share, or 1 cent higher than the average estimate of 28 analysts surveyed by Thomson Financial.
Shares of Wal-Mart rose $1.02 to $52.65 at 4:02 p.m. in New York Stock Exchange composite trading. They have fallen less than 1 percent this year.
Wal-Mart's net income increased to $2.65 billion from profit from continuing operations of $2.28 billion, or 52 cents, a year earlier. Last year, profit from the McLane trucking unit, which Wal-Mart sold in May 2003, helped to raise second-quarter net income to $2.44 billion, or 56 cents a share.
Scott opened or moved about 60 grocery-selling stores and reduced clothing inventory, leaving less merchandise for clearance sales. Wal-Mart also bought more goods directly from manufacturers.
Sales at U.S. stores open at least a year— which the industry calls same-store sales — rose 4.1 percent, slowing from a 6.4 percent gain in the first quarter. In the second quarter, same-store sales gained 3.2 percent at Wal-Mart stores and rose 8.8 percent at Sam's Club.
Growth was limited because of higher gasoline prices and a lack of new tax cuts, which spurred spending in last year's second quarter, Scott said.
Wal-Mart expects profit from continuing operations to range from 52 cents to 54 cents a share in the third quarter as same-store sales rise as much as 5 percent.
Profit for the year will be $2.36 to $2.40, executives said. Previously the company had forecast annual profit of as much as $2.39 a share.
Wal-Mart and the nation's other leading retailers have appeared to embrace the Federal Reserve's optimism that the recent economic slowdown is temporary and the retail sector and economy will bounce back.
But some analysts remain cautious, noting that the consumer spending picture is still murky.
Net income climbed 16 percent and sales rose 11 percent to $70.5 billion, Bentonville, Ark.-based Wal-Mart said.
Wal-Mart Stores' sales rose 11 percent to $70.5 billion in the second quarter. While the retailer is optimistic about the rest of the year, some economic analysts say consumer spending is still tenuous.
Gross margin, or sales minus the cost of goods sold, widened to 23.22 percent of sales from 22.89 percent. Wal-Mart's gross margin has widened in 11 of the past 12 quarters, chief financial officer Thomas Schoewe said.
