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Wal-Mart 3Q profits down from last year

Heath E. Combs, Don Hogsett -- Home Textiles Today, November 20, 2000

BENTONVILLE, AR - In a key and disconcerting barometer of what's going on at retail, and how the all-important holiday quarter is shaping up, third-quarter profits at Wal-Mart inched up a skimpy 5.8 percent, to $1.4 billion, way behind the gains of 20 percent or more that the world's largest retailer had been posting earlier in the year.

And in a surprising flip, the frequently underperforming Sam's Club business actually had a stronger earnings quarter than the core U.S. Wal-Mart stores. Overall profits at Sam's grew by 12.9 percent, to $219 million, nosing out Wal-Mart's 12.8 percent increase to $2.2 billion in operating profits.

But besting all of the American operations, earnings from international businesses grew by 25.5 percent, to $241 million from $192 million last year. Driven by an aggressive acquisition strategy, international operations now make more money than the Sam's Club operation-$241 million in the quarter vs. $219 million for Sam's Club.

Lifted by continued big gains in its international business, sales advanced by 13.0 percent, to $45.7 billion; but even that double-digit growth was substantially off the 20 percent growth recorded during the prior three months of the second quarter, the weaker sales gain clearly the product of Wal-Mart's aggressive low pricing policy as well as the slowing retail environment.

Sales largely followed the same pattern, with most of the growth coming from overseas operations. International sales advanced by 25.8 percent, to $7.4 billion; followed by a 10.5 percent increase in the U.S. Wal-Mart stores, to $29.2 billion; and a 9.3 percent increase at Sam's, to $6.6 billion.

Lee Scott, president and ceo, commented, "We are pleased that in a difficult quarter we were able to achieve record sales and earnings. We gained market share and generated good earnings growth in a challenging retail environment."

Putting something of a damper on profits, in addition to slowing sales growth, expenses increased by 18.3 percent in the period, to $375 million from $317. Interest costs on capital leases remained relatively steady, rising just 3.0 percent, to $68 million from $66 million. But interest expense on borrowed money shot up by 22.3 percent, to $307 million from $251 million.

Putting another crimp in the bottom line, the retailer posted an $18 million loss from its minority interest in a subsidiary.

Despite the weakening growth in sales, the retailer was able to hold its margins and costs steady during the third quarter. Average gross margin improved slightly, to 21.9 percent from 21.8 percent a year ago, while operating costs ticked up modestly, to 17.3 percent from 17.1 percent last year.

WAL-MART STORES INC.


Qtr. 10/31 (x000) 2000 1999 %CHG

Sales

$45,676,000

$40,432,000

13.0

Oper. income (EBIT)

2,569,000

2,385,000

7.7

Net income

1,369,000a

1,294,000a

5.8

Per share (diluted)

0.31

0.29

6.9

Average gross margin

21.9%

21.8%

-

SG & A expenses

17.3%

17.1%

-

NINE MONTHS

2000

1999

%CHG

Sales

134,733,000

113,619,000

18.6

Oper. income (EBIT)

7,951,000

6,603,000

20.4

Net income

4,291,000b

3,461,000b

24.0

Per share (diluted)

0.96

0.77

24.7

Average gross margin

21.8%

21.7%

-

SG & A expenses

17.0%

17.0%

-


a-Third-quarter results include an $18 million loss from a subsidiary, compared with a $17 million year-ago deficit.

b-Nine-month results include a $72 million loss from a subsidiary, an improvement over a prior-year loss of $84 million. Year-before results also include a $198 million non-cash charge stemming from a change in accounting.

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