Wal-Mart's U.S. Division Leads Profit Growth for Year

BENTONVILLE, Ark. — Despite what started out as a dismal holiday season and several miscues throughout the year, Wal-Mart Stores here last week said sales for its fiscal fourth quarter rose in double digits, including a strong showing in food sales at its U.S. stores.

The company said food sales at its U.S. supercenters grew by 13% in the period, with comparable food sales up in the mid-single digits.

In a recording discussing the results, Lee Scott Jr., president and chief executive officer, attributed the company's strong performance in the fourth quarter to its U.S. operations.

“Thanks to [Wal-Mart Stores U.S. CEO] Eduardo Castro-Wright and his team for knowing what is right for our customers and staying on strategy,” Scott said, noting that the U.S. division increased operating profits by 11.3% in the fourth quarter, nearly double the sales increase, which totaled 6.7%.

Charles Holley Jr., senior vice president of finance, said improved labor productivity was one of the factors that led to increased profitability.

For the full fiscal year, which ended Jan. 31, Holley said Wal-Mart's U.S. division saw its operating profit increase by 11.1% on a sales increase of 7.8%. He also said the U.S. division was able to achieve an increase in its return on investment, a goal that the company had set in 2005.

Comparable-store sales at all of Wal-Mart's U.S. stores were up 1.6% for the fourth quarter as an increase in the average ticket helped compensate for a decline in customer traffic. Comp sales were negatively impacted by the strong comp sales the company experienced in the Southeast in the wake of the 2005 hurricanes. The fourth-quarter comps included gains of 1.3% at Wal-Mart stores and 3.1% at Sam's Club, while comps of 2.1% for the full year included gains of 1.9% at Wal-Mart stores and 2.9% at Sam's.

The company said it completed 322 full remodels during the year and 1,300 partial remodels involving the home, apparel and electronics departments. Wal-Mart expects to conduct 325 full remodels in the current fiscal year.

Wal-Mart said net income for the whole company was up 9.75%, to $3.94 billion, for the fourth quarter. Income from continuing operations rose 8.8%. Revenues for the quarter rose 11%, to $99.08 billion, which included $98.09 billion in sales and $988 million in membership fees at its Sam's Club division and other income.

“We saw increases in our Sam's Club membership revenue and in rent income from leased space in our stores,” said Thomas Schoewe, executive vice president and chief financial officer. “We also continue to see increases in our financial services area, [which includes] check cashing, money orders and money wires, and product warranties.”

For the full year, net income was up 0.5%, to $11.28 billion, on an increase in revenues of 11.7%, to $348.65 billion, compared with the preceding year. Net income from continuing operations for the full year was up 6.7%, following the sale in the third quarter of the company's operations in Germany.

At the company's Sam's Club division, Wal-Mart said operating income grew 15.4% for the quarter and 9.2% for the full year, while sales grew 4.4% for the quarter and 4.5% for the year.

The company attributed the higher operating income at the warehouse club chain to higher membership revenues and expanded gross margins.

GAINS IN INTERNATIONAL

Wal-Mart said fiscal 2007 was a “turnaround year” for its Asda banner in the United Kingdom.

“Sales improved from each quarter to the next, and we ended the year with the comp-sales growth in over two years,” said Michael Duke, vice chairman, Wal-Mart International.

He said sales for the year were up in the mid-single digits, and profits increased “slightly.” Comps, excluding a positive impact from fuel sales, were up “in the low single digits,” he said.

In Canada, Duke said Wal-Mart's business has been “performing well, especially in food and consumables.”

The company opened its first three supercenters there late last year and added four more in January.

“We are pleased with how our Canadian customers have embraced this concept,” said Duke. “The Canadian team has taken our food offerings in the supercenters to a new level of quality and freshness.”

Mexico also had “an extraordinary year,” the company said. Sales were up 16.4% in the fourth quarter in real terms, adjusted for inflation, including a 7.1% increase in comps. For the full fiscal year, sales in Mexico were up 15.9%, including a comp-store sales gain of 5.9%.

The sales growth in Mexico was also driven by new-unit expansion, which included 120 new outlets in six different retail formats during the fiscal year, including 47 in the fourth quarter alone.

The company also reported sales that were ahead of its projections in other international markets, including Brazil, Central America, China and Japan.

Overall, the company said its International division posted operating income from continuing operations of $1.5 billion for the fourth quarter, up 32% over prior year. Sales from continuing operations rose 29.6%, to $22.7 billion.

4TH-QUARTER RESULTS