Wal-Mart Feels Pinch

Retailer's Sales Off-Target

Last updated Thursday, January 8, 2009 7:40 PM CST in News

By Lana F. Flowers
THE MORNING NEWS

Wal-Mart reported $10.7 billion in sales for the five weeks that ended Jan. 2 in its international division, a 10.4 percent decrease from the period ended Jan. 4, 2008.

Jeff Macke, founder and president of Macke Asset Management in San Francisco, has owned Wal-Mart stock for 16 months. He said he usually likes to "put lipstick on the pig and say how good things are," but he could not do that after Thursday's sales report.

"The street really knew that international business was not going to be great and there was ample opportunity for Wal-Mart to tell people to brace themselves on that point," Macke said.

The economy is in the toilet and might even affect Wal-Mart, so the company should acknowledge that and move on, Macke said.

However, Wal-Mart as recently as December affirmed previous earnings per share guidance then cut it, the second such incident since November, Macke said.

"Two warnings in one quarter to me is a pretty big red flag," Macke said.

Wal-Mart in its Thursday sales report addressed the earnings guidance issue.

The company expected fourth-quarter earnings per share of $1.03 to $1.07, a figure provided Nov. 13, but changes in currency exchange rates would cut that by about 6 cents per share, said Tom Schoewe, Wal-Mart executive vice president and chief financial officer.

The company then announced Dec. 23 that settling 63 of 73 pending class action wage lawsuits across the country would cost about 6 cents per share.

Now, the company expects fourth-quarter earnings per share of 91 cents to 94 cents, Schoewe said.

"I am not thrilled with it. Selling Wal-Mart was not even on my plate until this morning," Macke said.

Analyst John Lawrence with Morgan, Keegan & Co. in Memphis, Tenn., which does not own Wal-Mart stock, had a rosier view than Macke.

Wal-Mart noted weather conditions reduced sales in several states, where 40 stores were closed for times ranging from two hours to nine days.

The company's U.S. stores reported $30.9 billion in sales ended Jan. 2, up 4.3 percent from the $29.69 billion in sales for the period ended Jan. 4, 2008.

If the closed stores had been open, U.S. sales likely would have increased by an additional 1 percent to 1.5 percent, Lawrence said.

"If it was that much, all of a sudden you certainly move that base U.S. business to the high end of the range, when obviously investors were looking for a little better number," Lawrence said.

Shares of Wal-Mart (NYSE: WMT) closed Thursday at $51.38, down $4.16, or 7.49 percent. Shares rose to $51.70 in after-hours trading. The share price ranged from a $63.85 high to a $43.11 low in the past 52 weeks.

Stockholders traded about 92.38 million shares of Wal-Mart stock Thursday, nearly quadruple the average volume of 26.3 million shares.

Wal-Mart's holiday apparel sales likely were soft as shoppers found bargains equal to or better than Wal-Mart prices at other retailers and boutiques, who offered coupons and deep discounts, Lawrence said.

The company can do better in the coming year, Lawrence said, by controlling factors such as cleanliness of stores, merchandise assortment and cost.

International sales dipped because Wal-Mart's "customers around the world continue to feel pressure from the current global economy," said Mike Duke, vice chairman of Wal-Mart Stores.

He will take over as the company's president and CEO on Feb. 1 after Lee Scott retires.

The Sam's Club division had sales of $4.83 billion, down 2.1 percent from $4.94 billion in sales for the same period a year ago.

"Relative to our plan, sales came very late in the reporting period," said Doug McMillon, president and CEO of Sam's Club. He will take charge of Wal-Mart's international division Feb. 1.

"Our (Sam's) members were clearly cautious with their discretionary spending. Our small-business members in particular continue to face more pressure from today's economy and also are more selective in their purchases," McMillon said in a company news release.

One of Wal-Mart's main competitors, Minneapolis-based Target Corp., reported sales of $9.28 billion, up a scant 0.2 percent from the December period a year ago.

"During the month we reduced prices to gain market share and to end the year with very clean inventories," said Gregg Steinhafel, Target president and CEO.

Shares of Target (NYSE: TGT) closed Thursday at $37.52, up 51 cents.

That was nothing to crow about, Macke said.

"Target was up because they beat the terrible expectations from Wall Street," he said.

Little Rock-based Dillard's Inc. reported just more than $1 billion in sales for the five weeks ended Jan. 3, a 6 percent decrease from the year-ago holiday period.

The company reported shoes sold well, while the juniors' and children's clothing, home decor and furniture sales were soft.

Shares of Dillard's (NYSE: DDS) closed Thursday at $4.86 per share, up 21 cents, or 4.52 percent.

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