Aug 17, 2010
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Wal-Mart sales miss, says US consumers still wary

Aug 17, 2010

CHICAGO, Aug 17 (Reuters) - Wal-Mart Stores Inc (WMT.N) posted its fifth-consecutive quarterly drop in U.S. same-store sales and said it would focus on curbing expenses to help boost profits this year as consumer sentiment remains soft.


The world's largest retailer posted a higher-than-expected quarterly profit and raised its full-year forecast on Tuesday, helped by cost cuts and international growth.

But analysts questioned how much longer the company could count on cost cuts to fuel profits while U.S. sales struggled.

"Even though they raised guidance for the full year, how much more operating expenses can they cut?" Wall Street Strategies analyst Brian Sozzi said.

Wal-Mart said its strategy of offering short-term steep discounts on thousands of products in its U.S. stores failed to lift sales as much as expected. In July, it shifted back to a focus on what it calls "everyday low prices" to lure shoppers instead.

"The slow economic recovery will continue to affect our customers, and we expect they will remain cautious about spending," Wal-Mart Chief Executive Mike Duke said in a statement.

The weak economic recovery was underscored by U.S. Commerce Department data showing weaker-than-expected housing starts. Permits for future home construction fell to their lowest level in more than a year.

Wal-Mart said it will take time to see improvements in U.S. same-store sales and forecast a decline of 2 percent to an increase of 1 percent in that measure in the third quarter.

Shares in Wal-Mart rose 1 percent shortly after the opening bell.


Chief Financial Officer Tom Schoewe said Wal-Mart raised its full-year profit forecast based on its strong operating performance in the first half of the year, adding that it would continue to curb expenses going forward.

Wal-Mart's profit was $3.60 billion, or 97 cents a share, in the second quarter ended July 31. Analysts on average forecast 96 cents, according to Thomson Reuters I/B/E/S.

A year earlier, it posted a profit of $3.48 billion, or 89 cents a share.

Revenue rose 2.8 percent to $103.73 billion, below the average Wall Street forecast of $105.33 billion.

Sales at discount stores open for a year in the company's key U.S. market fell 1.8 percent.

Wal-Mart also raised its full-year earnings per share forecast to $3.95 to $4.05 a share from a previous forecast of $3.90 to $4. Analysts had forecast $3.99 per share.

International sales rose 11 percent, helped by strength in Mexico and new store openings in Brazil and China. On a constant currency basis, sales in the unit rose 7.3 percent.


Wal-Mart's customers tend to be particularly susceptible to a weak economy and high gas prices. Some have moved to lower-priced dollar stores as unemployment remains high, while others have traded up for more fashionable merchandise at rivals like Target Corp (TGT.N).

But some of Wal-Mart's problems were of its own making, including an ill-fated move to remove hundreds of items from stores in the "Project Impact" overhaul announced in 2008.

In June, Wal-Mart named Bill Simon as CEO of U.S. discount stores, replacing Eduardo Castro-Wright, who remained vice chairman of the company. Days later, the company announced the departure of the unit's chief merchandising officer.

Wal-Mart has also gone back to focusing on basics like T-shirts and socks in its apparel business, an area which has long been a drag on sales. Simon expects to see same-store sales improve in apparel in the fourth quarter.

Wal-Mart shares were up 50 cents at $50.91 on the New York Stock Exchange

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