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The Honolulu Advertiser

Posted on: Friday, May 14, 2004

Clothing helps boost Wal-Mart profit 16%

By Rachel Katz
Bloomberg News Service

Wal-Mart Stores Inc., the world's largest retailer, said first-quarter profit increased 16 percent as sales rose at the fastest pace in more than two years.

Net income climbed to $2.17 billion, or 50 cents a share, from $1.86 billion, or 42 cents, a year earlier. Sales in the three months ended April 30 jumped 14 percent to $64.8 billion, the company said in a recorded message.

Profit this year will rise to as much as $2.39 a share, 1 cent more than the company's prior range, said Wal-Mart, which is based in Bentonville, Ark.

Clothing sales, which are more profitable than food, boosted gross margin.

Chief Executive H. Lee Scott raised concern on the call that higher gasoline prices may hurt sales gains propelled by rising employment and income. Climbing gas prices have sliced more than $7 out of shoppers' weekly budgets, he said.

"That does take dollars out of Wal-Mart's top line, pure and simple," said James Luke, who helps manage $15 billion in assets at BB&T Asset Management in Raleigh, N.C.

Shares of Wal-Mart rose 19 cents to $55.25. They have gained 4.2 percent this year.

Selling, general and administrative costs rose to 18.33 percent of sales from 18.01 percent as energy, healthcare and workers' compensation expenses increased, Wal-Mart said.

Gross profit, or the amount of sales left after subtracting the cost of goods sold, widened to 22.84 percent of sales from 22.57 percent. Scott has been expanding clothing offerings such as Levi Strauss & Co.'s Signature jeans and Wal-Mart's George brand to get shoppers to buy more when they visit stores.

Wal-Mart's sales of clothing have increased as moderate-priced retailers including Sears, Roebuck & Co. and Kohl's Corp. have seen apparel sales decline. Sales at stores open at least a year fell 1.8 percent at Sears and 4.6 percent at Kohl's last month.

Sales of food at supercenters rose 24 percent, Chief Financial Officer Tom Schoewe said on the call. Wal-Mart's expansion of supercenters and neighborhood markets has attracted shoppers from grocery chains such as Winn-Dixie Stores Inc. and Safeway Inc.