Wal-Mart earnings for 2Q decline

Drop is the first in nearly a decade

revenue rises 11%

August 16, 2006|By MARKETWATCH

CHICAGO -- Wal-Mart Stores Inc. yesterday posted lower quarterly earnings for the first time in nearly a decade, as charges stemming from its decision to exit Germany offset the gains it enjoyed from consumers' back-to-school shopping.

The world's largest retailer also reaffirmed its forecast for the rest of the year but said the second half could be challenging.

Wal-Mart said it earned $2.08 billion, or 50 cents a share, down from last year's profit of $2.81 billion, or 67 cents a share. The latest results included an $863 million charge tied to the sale of its German operations to rival Metro AG after nearly nine years of losing money in Europe's biggest economy.

Wal-Mart said its earnings would have shown an increase to $2.98 billion, or 72 cents a share, not counting the German operations or its South Korean business, which it also sold this year. On that basis, the results matched Wall Street's average expectations.

Total revenue, gaining strength from sales of college dorm-room bedding and furnishings, climbed about 11 percent to $85.43 billion. Analysts expected sales of $86.27 billion, according to the average tally compiled by Thomson Financial.

Chief Executive Officer H. Lee Scott Jr. said he was "disappointed" with the results and said high prices at gas stations combined with other energy costs will continue to have an impact on earnings.

"In the United States, customers tell us that they're most concerned about gas prices," Scott said in a conference call to discuss the results.

High gasoline prices have forced many consumers to consolidate their shopping trips, but they're spending more per store visit, Scott said. Wal-Mart has noticed that there are fewer weekday trips, or what they called "fill in" store visits.

"We find it encouraging that we continue to grow market share in food and consumables during this time," Scott said.

At Wal-Mart Stores, sales rose 6.9 percent to $55.39 billion. At Sam's Club, sales rose 5 percent to $10.47 billion.

Internationally, sales rose 31.9 percent to $18.66 billion on the acquisition of Brazilian and Central American arms and an additional investment.

U.S. same-store sales, a key measure of sales at stores open at least one year, rose 1.7 percent.

At Wal-Mart Stores, same-store sales were higher by 1.5 percent, and they rose 2.6 percent at Sam's Club.

Goldman Sachs analyst Adrianne Shapira saw "encouraging signs" in the numbers despite the lower-than-expected sales.

"Although the stock may trade down in the near term given pressured U.S. margins, we are somewhat more upbeat," she wrote in a note to clients. The U.S. division of Wal-Mart stores' operating margins eroded because of higher transportation costs, investments in remodeling as a way to jump-start sales and higher spending on back-to-school advertising.

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