Wal-Mart Posts Q2 Profit Gains

Although Wal-Mart Stores here anticipates ongoing sales volatility on a week-to-week basis, it believes its U.S. businesses are well-positioned to deal with the current economy, company officials said last week. Wal-Mart expects comparable-store sales for the current quarter to be within a range of 1% to 2%, they said. H. Lee Scott, president and chief executive officer, said the

BENTONVILLE, Ark. — Although Wal-Mart Stores here anticipates ongoing sales volatility on a week-to-week basis, it believes its U.S. businesses are well-positioned to deal with the current economy, company officials said last week.

Wal-Mart expects comparable-store sales for the current quarter to be within a range of 1% to 2%, they said.

H. Lee Scott, president and chief executive officer, said the company is raising its guidance for fiscal-year earnings — “because of the underlying strength of our operations,” he noted — to a range of $3.43 to $3.50 per share, compared with earlier guidance of $3.30 to $3.43.

Net income for the second quarter ended July 31 rose 16.8% to a record level of $3.5 billion, while total sales jumped 10.4% to $101.6 billion — the second time the company has hit the $100 billion mark in a quarter, Scott pointed out.

Sales at Wal-Mart's U.S. stores — encompassing supercenters, discount stores and Neighborhood Markets — increased 8.5% to $64.1 billion, with comparable-store sales rising 4.6%, excluding fuel. Sales at Sam's Club rose 8% to $12.3 billion, with comps up 3.7%.

For the half, net income was up 12% to $6.5 billion, while total sales rose 10.3% to $195.7 billion. Sales at Wal-Mart's U.S. stores increased 7.6% to $123.1 billion for the half, with comps up 3.7%. Sales at Sam's Club jumped 7.8% during the same period to $23.4 billion, with comps up 3.7%.

Eduardo Castro-Wright, executive vice president of Wal-Mart and president and CEO of the Wal-Mart Stores division, said U.S. comps for the half were up 3.7%, compared with an increase of 0.6% a year ago.

“While the stimulus checks contributed to sales growth during the second quarter, the underlying strength of our business — including our clear price leadership position, operational improvements and stronger merchandise quality and presentation — were important factors in our results,” Castro-Wright told analysts during a prerecorded earnings call.

He said U.S. stores had positive traffic and ticket increases for the quarter and year-to-date, with the fastest traffic growth in metropolitan areas, “though we also continue to see increases in ticket in some rural markets as customers consolidate their trips to save money on gas.”

In an effort to mitigate the impact of price increases from suppliers, Wal-Mart is increasing the number of rollbacks in grocery “substantially,” Castro-Wright said, “and grocery maintained its solid performance for food and consumables.”

With customers spending more time looking for ways to stretch their dollars, Wal-Mart is continuing to emphasize value, he added, pointing to the chain's “simple mealtime ideas” launched in July, which features products that can be used to prepare a meal for a family of four for under $10, and a new TV commercial featuring the company's take-and-bake pizza.

C. Douglas McMillon, executive vice president and president and CEO of Sam's Club, said his stores experienced strong sales in food and consumables, with traffic and tickets up for individual and business members.

“Despite recent improvements in some product pricing, we anticipate continued pricing pressures in coming months,” he said, “and we expect the next couple of quarters to be challenging from a renewal perspective.”

Thomas M. Schoewe, executive vice president and chief financial officer, said Wal-Mart achieved free cash flow for the half of $4.9 billion — “incredible progress,” he noted, from the cash-flow deficit of $773 million last year. He attributed the achievement to a solid operating performance and improved capital efficiency.

In his remarks, Scott said he attributes the company's strong results to changes it made over the past couple of years. “We started to see that our customer was being pressured back in 2006 and 2007, so we decided at that time to reduce capital expenditures and invest more in price,” he pointed out.

“Today, we are glad we made those decisions.”

Q2 RESULTS
Qtr Ended 7/31/08 7/31/07
Sales $101.6B $92.0B
Change +10.4%
Comp-store +4.5%*
Net Income $3.5B $3.0B
Change +16.8%
Inc/Share 87 cents 72 cents
26 Weeks 2008 2007
Sales $195.7B $177.4B
Change +10.3%
Comp-store +3.7%
Net Income $6.5B $5.8B
Change +12%
Inc/Share $1.63 $1.40
* EXCLUDING FUEL