Wal-Mart reports 27% gain in net income CompUSA's profit declines 65% due to sluggish sales, low prices

Earnings

November 11, 1998|By BLOOMBERG NEWS

BENTONVILLE, Ark. -- Wal-Mart Stores Inc., the world's largest retailer, said yesterday that fiscal third-quarter profit rose a better-than-expected 27 percent as the discount chain kept a lid on costs and sold more paper goods, cosmetics and other household items.

Net income rose to $1.01 billion, or 45 cents a share, from $792 million, or 35 cents, a year earlier, beating analysts' forecasts by 2 cents. Revenue for the quarter, which ended Oct. 31, rose 16 percent to $33.51 billion from $28.78 billion.

The retailer squeezed more money from sales, particularly in the low-profit food business, by demanding reduced costs from suppliers. That held its gross margin to about 21 percent. Controlling costs helps Wal-Mart reduce prices on toys, clothing and electronics, the biggest sellers in a holiday season dominated by discount retailers.

Wal-Mart is likely to lead the industry because it does "a thousand things 1 percent better than anyone else," said portfolio manager Brian James of Loomis Sayles & Co., which owned about 1.32 million shares as of June. "They pay a tremendous amount of attention to the details of cost-containment."

A seven-year economic expansion, inflation under 2 percent and an unemployment rate near 28-year lows are expected to boost retailers' sales at stores open at least a year this holiday season. Bank of Tokyo-Mitsubishi is forecasting a sales gain of 4.5 percent to 5 percent, equal to last year's rise.

"There's no sign of a recession," said analyst Steve Paspal of Sovereign Asset Management, a unit of John Hancock Funds that owned 1.13 million shares as of September. "Consumers are willing to spend if you show them a good value."

Wal-Mart shares fell 37.5 cents in trading yesterday, closing at $70.1875.

Sales at stores open at least a year rose 8.5 percent in the quarter, after increases of 7.7 percent in October, 9.5 percent in September and 7.6 percent in August. Same-store sales are a key indicator of a retailer's business because they exclude new, remodeled or closed stores.

Wal-Mart operates about 1,863 Wal-Mart discount stores, 543 Supercenters and 450 Sam's Clubs in the United States. It also has more than 600 international stores.

CompUSA Inc.

CompUSA, the largest U.S. retailer of personal computers, said yesterday that its fiscal first-quarter profit fell 65 percent because of lower prices and sluggish sales to businesses, which it warned will hurt sales next quarter.

Net income in the period, which ended Sept. 26, fell to $8.14 million, or 9 cents a share, from $23.5 million, or 25 cents, a year earlier.

CompUSA lost money in its fourth quarter and had a profit decline in the prior period as computer prices dropped amid an industrywide inventory glut. Analysts said prices may continue to post steep declines.

The company's 207 superstores also are being hurt by increasing PC sales via the Internet and by telephone, and is working to turn around its newly acquired Computer City stores.

Sales in the quarter rose 17 percent to $1.39 billion from $1.19 billion.

Sales at stores open at least a year dropped 1.7 percent because the average PC selling price fell about 15 percent, the company said. CompUSA forecast a low-single-digit percentage decline in same-store sales next quarter. Analysts had expected a small sales gain.

CompUSA bought unprofitable rival Computer City from Tandy Corp. in August for $170 million.

It has closed more than half of the 101-store chain to try to bring the profitability of remaining stores in line with CompUSA's.

Pub Date: 11/11/98

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