Walmart Earnings Beat Expectations; Shares Rise

By Nathan Layne

Walmart Stores reported slightly stronger-than-expected quarterly earnings Tuesday as it booked its fifth straight gain in U.S. same-store sales, sending its shares up more than 4 percent.

However, the company also said it expected sales at stores open at least a year to grow more slowly during the current quarter, which includes the crucial holiday shopping season, and that business would remain competitive.

Walmart's earnings have been under pressure from costs to boost entry-level wages and spruce up stores. Last month it warned that those costs would lead earnings to decline by as much as 12 percent next year, prompting many investors to dump the stock.

%VIRTUAL-WSSCourseInline-908%The company has also said that those investments, while hitting profits, are also starting to translate into better customer service and helping to lift sales.

"We are starting to get some good momentum," Greg Foran, chief executive of U.S. operations, said on a call with reporters.

Net profit attributable to the world's largest retailer fell to $3.304 billion, or $1.03 a share, in the third quarter ended on Oct. 31 from $3.711 billion, or $1.15 a share, a year earlier.

Analysts on average had expected 98 cents a share, according to Thomson Reuters I/B/E/S.

The results included a boost of 4 cents a share from an adjustment of accounting for leases.

Sales at U.S. stores open at least a year rose 1.5 percent, while customer traffic increased 1.7 percent. The company said food, apparel and home goods performed well, while its entertainment department struggled due in part to a lack of blockbuster products on the market to drive demand.

Walmart said inventory on a comparable store basis fell by 1.9 percent, a sharp contrast with Macy's and other retailers that warned of a build-up of stock in recent weeks.

In a note to clients, Cowen & Co. analyst Oliver Chen wrote that Walmart's "clean inventory position" should somewhat limit promotional pressure among discounters during the holiday season. He also said Walmart's sales growth, driven by sales and apparel, should generally bode well for Target (TGT), which reports quarterly results Wednesday.

Walmart said operating income fell 8.8 percent to $5.7 billion. Foran said the company had added more labor hours than initially planned during the quarter while also making investments in customer-facing parts of the store.

Walmart said consolidated revenue fell 1.3 percent to $117.4 billion, weighed down by international operations, which have been hurt by a stronger dollar. It said online sales increased 10 percent in the quarter, slower than its plans for growth in the mid-to-high-teens this fiscal year. It cited weakness in Brazil, China and the U.K.

The company forecast same-store U.S. sales growth would slow to 1 percent in the fourth quarter due to a tough comparison from last year when a big drop in fuel prices and food inflation boosted sales.

Walmart narrowed its forecast for earnings per share in the full fiscal year to end-January to $4.50 to $4.65 from $4.40 to $4.70. The market consensus was for $4.50.

Walmart (WMT) shares were up 4.4 percent at $60.43 in morning trading.