Wal-Mart Q4 Net a Pleasant Surprise

NEW YORK – The world’s largest retailer exceeded analysts’ consensus earnings estimates in its fourth quarter, allowing it to post yet another year of record sales and earnings.

In the three months ended Jan. 31 Wal-Mart Stores’ net income rose 9.8% to $3.94 billion, or 95 cents a diluted share, ahead of the consensus estimate of 90 cents. This came against year-ago net income of $3.59 billion, or 86 cents. Excluding a loss from discontinued operations in South Korea and Germany, year-ago net income was $3.62 billion.

Net sales in the quarter were $98.09 billion, 10.9% above the year-ago mark of $88.42 billion. Sales at US Wal-Mart Stores were up 6.7% to $64.23 billion, Sam’s Club ahead 4.4% to $11.13 billion and international, bolstered by acquisitions, 29.6% beyond year-ago levels at $22.73 billion. Same-store sales in the US were up 1.6% with Wal-Mart ahead 1.3% and Sam’s 3.1% higher.

“The Wal-Mart associates around the world stepped up and delivered a wonderful fourth quarter and I am encouraged by their achievements as we head into the current fiscal year,” commented Lee Scott, president and chief executive officer of Wal-Mart. “Our company’s performance for the fiscal year was helped by a strong fourth quarter. Even if you take into account the discontinued operations, we still had record results.”

Christine Augustine, broadlines analyst at Bear, Stearns, noted that operating margins were both better than she’d expected and higher than year-ago levels at all three units – 8.17% of sales at Wal-Mart, 3.91% at Sam’s and 6.66% at international – and that the corporate gross margin of 23.73% of sales also beat estimates and exceeded results for the fourth quarter of fiscal 2006. The increased margins helped offset higher expense levels, including a 12.2% increase in quarterly operating expenses.

“We believe gross margins benefitted from global sourcing and inventory management,” she wrote in a note to investors. “However, we believe fashion markdowns and other pricing actions could continue to weigh on the retailer, along with freight costs and continued growth in low margin consumables.”

For the full year, net income nudged up 0.5% to $11.28 billion, or $2.71 a diluted share, from $11.23 billion, or $2.68. Excluding discontinued operations, net income was up 6.7% to $12.18 billion. Net sales advanced 11.7% to $344.99 billion from $308.95 billion in the prior year.

Wal-Mart said it expects same-store sales in the US to rise 1 to 3% during the first quarter, with earnings per share of 68 to 71 cents, excluding discontinued operations. For the full year, the forecast is for EPS for continuing operations of between $3.15 and $3.23.

The results and upbeat forecast helped lift Wal-Mart’s stock, which closed the New York Stock Exchange trading session Tuesday at $50.26 a share, up $1.78 or 3.7%.