Wal-Mart profit is flat, but it boosts outlook

Wal-Mart Stores on Thursday reported second-quarter income virtually unchanged from a year ago, but results beat Wall Street expectations.

The world's largest retailer also raised the low end of its profit outlook as it benefits from cost-cutting and draws frugal shoppers from rivals.

But Wal-Mart officials cautioned the economy will remain difficult, forcing shoppers to keep buying less-expensive store-label products and smaller pack sizes. And they don't expect the holiday season to be dramatically better than last year.

"Overall, our customers are more disciplined in their spending," Mike Duke, Wal-Mart's president and chief executive, told investors during a pre-recorded call Thursday. "There's a new normal" of saving more and spending less, he said.

As for the holidays, Chief Financial Officer Tom Schoewe told reporters during a conference call he's "hopeful that it will be better than last year."

"Last year was a very, very unusual time," he said.

Wal-Mart wmt earned $3.44 billion, or 88 cents a share, in the quarter ended July 31. That compares with $3.45 billion,or 87 cents a share, in the year-ago period. Revenue fell 1.4% to $100.08 billion.

Analysts surveyed by Thomson Reuters projected earnings of 85 cents on revenue of $102.9 billion.

Wal-Mart shares rose in premarket trading, after closing at $50.51 Wednesday.

But same-store sales, or sales at stores open at least a year, slipped 1.2% in the quarter. That figure provides the first glimpse of a key sales measurement, because Wal-Mart stopped reporting sales monthly after announcing its April results.

"In a sales environment more difficult than we expected, we managed our operations in a disciplined manner," Mike Duke, president and chief executive, said. "Our U.S. segments delivered strong inventory performance, which contributed to the company's healthy increase in year-over-year earnings. We are accelerating our focus on reducing our expenses."

Schoewe told reporters that inventory at Wal-Mart U.S. stores was down 6% during the quarter from the year-ago period.

Wal-Mart has been one of the few bright spots in retailing this year, benefiting from shoppers focusing on necessities during the recession. But a big part of its success in drawing new customers away from higher-priced stores has been largely due to its low prices and efforts to clean up stores and improve merchandise. That all came together just as the economy started to sour.

Now Wal-Mart is embarking on an ambitious store remodeling plan and is sprucing up its merchandise even more in hopes of retaining its new customers after the economy recovers. It plans to redo up to 600 stores this fiscal year at a cost of $1.6 billion to $1.7 billion.

The new store format includes lower shelving that will make it easier to see across the store, better lighting and wider aisles. The chain also is adding brands and expanding its electronics offerings.

Wal-Mart shares, which soared 20% last year, have fallen 11% since the beginning of the year as investors turn to the beaten-down shares of more upscale companies like Williams Sonomawsm, which Wall Street believes didn't have much further to fall and could benefit when shoppers start spending again.

Right now, the recovery in consumer spending doesn't seem near. Wal-Mart's Schoewe said early signs for the back-to-school season show that shoppers are focusing on replenishing basics and are fixated on "value" but he believes Wal-Mart is picking up market share across all categories of business.

He also said he sees a continued trend toward shoppers paying for more of their purchases with cash and debit cards instead of credit cards.

Against this challenging environment, Wal-Mart said same-store sales should be unchanged to up 2% in the third quarter ended Oct. 30.

Wal-Mart boosted the low end of its annual profit guidance to a range of $3.50 to $3.60 a share, from $3.45 to $3.60. Analysts surveyed by Thomson Reuters predict $3.56 per share.

For the third quarter, Wal-Mart expects earnings of 78 cents to 82 cents a share, including a 3-cent negative impact from currency exchange rates. Analysts surveyed by Thomson Reuters expect 80 cents a share.