Wal- Mart stock up nearly 11%

Profit down 42%, but jump in 3Q sales tops expectations

Wal- Mart Stores Inc. posted its strongest U. S. sales increase in more than eight years during the third quarter of the fiscal year, which pushed shares of company stock to another record close Thursday.

A 2.7 percent increase in sales at stores open at least one year — or same- store sales — highlighted a quarter in which net income was down 42 percent as the retailer continues to lower prices to compete with online retailers and discounters and invest in digital initiatives. But revenue and profits adjusted to exclude certain nonrecurring items still topped analyst expectations as Wal- Mart continues to attract shoppers and increase sales in a competitive retail environment.

The Bentonville company reported net income of $ 1.7 billion, or 58 cents per share, compared with $ 3 billion, or 98 cents per share, during the same three- month period a year ago. Revenue for the quarter increased 4.2 percent to $ 123.2 billion. Both revenue and adjusted earnings per share of $ 1 topped analyst expectations of $ 121 billion and 97 cents, respectively.

As a result, Wal- Mart’s stock moved to another record high with shares rising $ 9.79, or almost 11 percent, to close Thursday at $ 99.62. Shares of Wal- Mart stock have climbed more than 40 percent this year.

“We have momentum and it’s good to see customers responding to our store and e- commerce initiatives,” Chief Executive Officer Doug McMillon said in a prepared

statement.

The same- store sales increase of 2.7 percent marked the 13th- consecutive quarter of growth and topped expectations of 1.8 percent. Traffic also increased 1.5 percent, which was the 12th- straight quarter of improvement. The company acknowledged it benefited from hurricane- related purchases during the quarter as U. S. net sales grew 4.3 percent.

Wal- Mart told investors last month that it will continue to slow its new- store openings, instead planning to grow sales with its current lineup of stores and expanding e- commerce business. So Brian Yarbrough, a retail analyst with Edward Jones, said same- store sales growth and traffic gains are key metrics.

“The days of Wal- Mart opening a bunch of new stores and driving sales with new stores is over,” Yarbrough said. “So the key is online and same- store sales growth and this was a good number. It was better than expectations. I think it was better than anyone had thought.”

Ben Bienvenu, a retail analyst with Stephens Inc., said the company produced “phenomenal results.”

“They’re firing on all cylinders right now,” Bienvenu said.

Acceleration continued in

the grocery business, which accounts for more than half of Wal- Mart’s U. S. sales. McMillon said the food business delivered the strongest quarterly sales performance in almost six years.

Wal- Mart has been aided by its grocery pickup service, which lets customers order products online and then collect them at the store. WalMart has 1,100 grocery pickup locations with another 1,000 planned.

U. S. stores chief Greg Foran also attributed sales growth to previous efforts to clean up its stores, improve the assortment of products, reduce inventory and better train and equip employees. Overall, Foran said Wal- Mart’s work has helped attract customers and WalMart is getting those shoppers to “put another item in the basket.”

“I can tell you we’ve got plenty of work to do still in our stores,” Foran said. “There’s lots of opportunity. But I’m pleased with the momentum and pleased the plan we have in place is being executed.”

Wal- Mart also reported a 50 percent increase in U. S. e- commerce sales. U. S. e- commerce chief Marc Lore said the bulk of the sales growth continues to come from Walmart. com. WalMart’s online assortment has grown to more than 70 million items and the company offers services like free twoday shipping on orders of $ 35 or more.

The business continues to pressure margins, but the retailer is exploring ways to control costs. One example: Wal- Mart now lists online prices for some food and household items that are higher than store prices.

“There’s lots of cases where it’s just cheaper to sell product out of a store,” Lore said.

Net sales at Sam’s Club, the company’s warehouse division, increased 4.4 percent to $ 14.9 billion during the third quarter. The growth was led by a same- store sales increase of 2.8 percent, which marked the seventh- straight quarter of positive comparable sales. Sam’s Club also reported a 3.6 percent traffic increase.

The international business reported net sales of $ 29.5 billion, which was a 4.1 percent increase. Ten of Wal- Mart’s 11 international markets posted net sales increases, including Mexico ( 9.2 percent) and China ( 4 percent).

“I think there’s a common thread across all these business lines where it’s just running a more disciplined operation, getting back to the basics,” Bienvenu said. “That’s beneficial to all of their business segments and I think you’re starting to see the halo effect around WalMart U. S. The things that are working there, should and have had a similar impact on all the other businesses.”

Wal- Mart’s quarter included three nonrecurring

fees that affected profits. The company said there was a one- time charge of 29 cents per share for the early payment of some debt and an expense of 4 cents per share for exiting certain properties in one of the company’s international markets.

Wal- Mart also incurred a 9 cents- per- share charge based on discussions with government agencies regarding a potential resolution to its foreign- bribery case. The company, which has spent $ 870 million on the investigation and a global compliance program since fiscal 2013, said discussions are ongoing. But Wal- Mart estimates a $ 283 million, or 9 cents per share, expense related to the settlement.

“We’re at a point in our discussions … that we can reasonably estimate a loss and that’s why we made the accrual,” Wal- Mart Chief Financial Officer Brett Biggs said.

Wal- Mart said it returned $ 3.7 billion to shareholders through dividends and a share repurchase program in the quarter.

The retailer also raised its adjusted full- year earnings guidance to a range of $ 4.38 to $ 4.46 a share Thursday.

“I’m pleased with our third- quarter results,” McMillon said. “But I’m more excited about our strategic positioning as we enter the fourth quarter this year. We’re stronger as a company.”