Thread: Wal-Mart Sees 1st Profit Drop in 10 Years

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Wal-Mart Sees 1st Profit Drop in 10 Yrs.
Tuesday, August 15, 2006 1:06 PM EDT
The Associated Press
By MARCUS KABEL

Wal-Mart Stores Inc. posted its first profit decline in a decade Tuesday as the world's largest retailer was forced to pay a hefty price for withdrawing from Germany, selling its stores there at a loss to a rival.

Chief Executive Lee Scott also said sales at Wal-Mart's U.S. stores were disappointing as high gas and energy prices hit the pocketbooks of customers.

Results were still in line with expectations and the company reiterated its guidance for the year. The company's stock fell 65 cents, or 1.4 percent to $44.45 in late morning trading on the New York Stock Exchange.

For the quarter ended July 31, the company posted net income of $2.08 billion, or 50 cents per share, down from $2.81 billion, or 67 cents per share, a year ago. That includes an $863 million charge related to the sale of its German stores to Metro AG.

The last time Wal-Mart saw quarterly profit fall was in 1996.

Wal-Mart last month said it was pulling out of Germany after racking up losses since it started there in 1998. The announcement came two months after leaving South Korea in what analysts welcomed as a move to focus resources on expanding in more profitable markets like China and Latin America.

Excluding South Korean and German stores, the sales of which are both pending, Wal-Mart's income from continuing operations grew 5 percent to $2.98 billion, or 72 cents per share, from $2.85 billion, or 68 cents per share, a year ago.

Wal-Mart's international division, which still includes 13 countries in Asia, Latin America and Britain as its only European market, outpaced the larger U.S. business. International operating profit rose 25 percent to $997 million compared with $4.159 billion, an increase of 4.2 percent, for U.S. Wal-Mart stores.

Sam's Club operating income rose 8.4 percent to $402 million.

The earnings results were in line with Wall Street expectations for a profit of 72 cents per share, though revenue came in below the $86.24 billion consensus estimate.

Revenue totaled $85.43 billion, an increase of 11.4 percent from the $76.69 billion posted a year ago.

Chief Executive Lee Scott said high gas and energy prices continued to affect Wal-Mart's U.S. customers and its own costs of doing business.

Customers are making fewer trips to the stores in order to save gas, but on average, they're buying larger amounts each time, he said.

"In the United States, customers tell us they are most concerned about gas prices," Scott said in a prerecorded message. "This has been consistent every month this quarter."

Scott said he was "quite honestly disappointed by the sales performance of Wal-Mart U.S."

Sales at stores open at least a year — a key retail measure — were up 1.5 percent at Wal-Mart U.S. stores and 2.6 percent at Sam's Clubs.

Rival Target last week said its sales at stores open at least a year rose 4.6 percent for the quarter.

Wal-Mart's domestic profit margins are also under pressure from factors including higher transportation costs and more sales of lower-margin products, Chief Financial Officer Tom Schoewe said.

Food sales grew faster than general merchandise, he said. That pressured margins because groceries are less profitable than items like apparel, home furnishings or electronics.

Looking ahead, the company forecast third-quarter earnings from continuing operations between 59 cents and 63 cents per share, compared with the average analyst estimate of 63 cents.

For the year, Wal-Mart reiterated guidance for profit from continuing operations of $2.88 to $2.95 per share. Analysts are currently predicting earnings of $2.92 per share.

Don't shop there anymore and haven't for months.

Glad to hear it. The way they and McDonalds cater to illegals their sales should be soaring.

I stopped shopping there the 4th of July weekend, and don't plan to go there again.

Hmmm, perhaps that is why there was an article in todays N&O (my local paper) regarding a new Wally-World employee wage CAP.

I haven't spent a dime there in over 6 years. I'd rather pay a few bucks more than to support their business.

I confess, I have to shop there but I only buy American Made Products and groceries but avoid products from Mexico.

Don't buy Cheap Crap from China.

Dixie

Don't shop there and I hope they go out of business!
They deserve everything they lose...business, money, customers that create a mess in their stores and of course shop lifting...since they don't prosecute anything over $25 now. Hummm, yea...they chose their customers and workers, hope they are enjoying them!

I just sent them a 2nd letter. Told them I would shop there if they started supplying more "made in America".