Wal-Mart Stores Inc., the world’s largest retailer, said last week that its fourth-quarter profit rose 9.8 percent, exceeding analysts’ estimates, as discounts on toys and electronics attracted holiday shoppers.
Net income rose to $3.94 billion, or 95 cents a share, the Bentonville, Ark.-based company said Wednesday in a statement. Sales climbed 11 percent to $98.1 billion, driven by gains in the United Kingdom and Mexico.
Fourth-quarter sales at stores open at least a year climbed 1.6 percent as Wal-Mart cut prices during the holidays. CEO H. Lee Scott re-emphasized the retailer’s “low-price” message after failing to win customers from Target Corp. with exclusive clothing.
“I frankly think the company is showing some very meaningful progress in terms of righting the ship,” said Peter Sorrentino, a portfolio manager at Cincinnati-based Huntington Asset Management with $6.5 billion in assets including Wal-Mart shares.
Profit, which included a 2-cent-a-share tax benefit, beat the 90-cent average estimate from 19 analysts surveyed by Bloomberg. Profit a year earlier was $3.59 billion, or 86 cents a share.
Excluding the German and South Korean operations that were sold, income from continuing operations then was $3.62 billion.
Fourth-quarter sales were less than the $98.5 billion on average estimated by analysts. Including membership fees and other income, revenue was $99.1 billion.
Wal-Mart forecast first-quarter profit from continuing operations of 68 cents to 71 cents a share. For the year, the company projected earnings of between $3.15 and $3.23.
The retailer also forecast a U.S. same-store sales gain of 1 percent to 3 percent for the quarter.
Wal-Mart promoted itself at the end of 2006 as the lowest- price holiday destination. That’s a message the company will continue to stress even as it adjusts stores and merchandise, said Charles Holley, the company’s treasurer at a Feb. 14 conference.
Wal-Mart widened the price differences with rivals in areas ranging from groceries to pharmaceuticals, helping bring customers to its U.S. stores, Wal-Mart Chief Financial Officer Thomas Schoewe said Wednesday in an interview.
Gross margin, or the percentage of sales left after the cost of goods sold, widened to 22.96 percent from 22.66 percent a year ago.
“We saw 30 basis points of total improvement, in spite of the fact that they had higher markdowns on apparel and higher freight costs,” said Walter Stackow, who helps manage $950 million in assets, including Wal-Mart shares, at the First American Large Cap Value Fund in Minneapolis.
International results were helped by three acquisitions that have occurred since the year-earlier quarter. This included the purchase of an additional stake in Japan’s Seiyu Ltd., bringing Wal-Mart’s holdings to 53 percent.
Wal-Mart also saw a “tremendous performance in Mexico,” Scott said on a pre-recorded conference call. International profit climbed 32 percent, the company said.
The company’s U.K. ASDA chain had its strongest sales gain in more than two years as organic and premium food drew shoppers.
Capital spending growth, estimated at between 2 to 4 percent, will be less than sales gains this year, Schoewe said on the call. U.S. store expansion will increase 2 to 3 percent.
For the year, Wal-Mart said profit rose 0.5 percent to $11.3 billion. Sales climbed 12 percent to $345 billion. Including membership and other income, revenue was $348.7 billion.
Annual same-store sales posted a 2.1-percent gain, the smallest increase in at least 27 years, hurt by store renovations at more than half of its 3,300 U.S. Wal-Mart supercenters and discount stores as well as slack demand for higher-price clothing.
The company has said it misstepped with Metro 7, a more fashionable women’s clothing line introduced in October 2005, and it is removing the collection from as many as 900 of the 1,500 stores that carried it.
Wal-Mart has faced criticism from labor groups and some politicians, who say it needs to improve health benefits and wages. The company is also the object of the largest-ever sex discrimination lawsuit and more than 70 complaints charging it has failed to pay employees for all time worked.
Minneapolis-based Target, which reports fourth-quarter earnings on Feb. 27, has outpaced Wal-Mart in same-store sales the past nine quarters before this one with housewares and clothing by designers such as Proenza Schouler and Cynthia Rowley.
Wal-Mart last posted a monthly gain ahead of Target in November 2005.
Target’s net income is estimated to climb 16 percent, or to $1.27 a share, on sales of $19.6 billion, according to analysts surveyed by Bloomberg.
With reporting by Charles Stein in Boston, Mary Jane Credeur in Phoenix, and Ken Prewitt, Karen Moskow and Maki Kitamura in New York.
