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Walmart U.S. 3Q Sluggish, Hindered by Home and Apparel

BENTONVILLE, ARK. - Home was among the two lines of businesses - with apparel - that suffered negative comp store sales during the company's third quarter at Walmart U.S., which overall experienced sluggish sales, store traffic and average ticket.
     "Operating income grew faster than sales, and Bill [Simon, Walmart U.S. president and ceo] and his team delivered expense leverage," noted Mike Duke, president and ceo of Wal-Mart Stores Inc., during the retailer's prerecorded earnings call last month. "The U.S. team is taking the right steps to position our stores for the fourth quarter and for next year."
     Added Tom Schoewe, evp and cfo, in his last earnings call presentation before he retired from the company Dec. 1: "We have an opportunity to improve Walmart U.S. comp store sales. We believe the fourth quarter will be in positive territory."
     Still, the company grew its profit for the quarter ended Oct. 31. Total income from continuing operations attributable to Walmart for the quarter was up 9.3% to $3.4 billion, or 95 cents per share.
     Sales rose 2.6%, to $101.2 billion from $98.7 billion.
     Year to date, Wal-Mart Stores Inc.'s sales increased 3.8% to $303.35 billion from $292.31 billion, and income from continuing operations attributable to Walmart grew by 7.5% to $10.33 billion from $9.6 billion.
     Simon said the overall home business was plagued by "some weakness in discretionary and décor categories, but customers responded well to back-to-college, cooking and dining merchandise as well as and floor care."
     Home performed better online at www.Walmart.com, and the company expects this trend to continue into the holiday season, "driven by strong siteto-store demand, free shipping to home, an expanded FedEx metro pickup, now in five major metropolitan markets and our ‘pick up today' program, now available in over 800 stores."
     Home was a bright spot at Sam's Club, where sales during the quarter were "particularly strong in fresh, jewelry, home and certain technology and entertainment categories," said Brian Cornell, the division's president and ceo.
     The warehouse club chain's third quarter net sales, excluding fuel, increased 138 basis points over last year to $11.1 billion. Including fuel, quarterly sales increased 2.7% to $12.1 billion.
     Sam's Club third-quarter comp sales, excluding fuel, increased by 2.4%, exceeding original guidance of flat to 2%.
     Sam's year-to-date sales, excluding fuel, were up 3.1% to $36.35 billion, and comps rose 1.4%.
     Walmart U.S.' net sales for the 13-week period were flat to last year at $62.2 billion, and its comp store sales were within guidance, declining 1.3% as both traffic and average ticket fell slightly.
     Inventory was another soft spot in the third quarter for Walmart U.S., with a 6.5% increase compared to last year. This rise was driven primarily by the planned seasonal buildup in the distribution centers, Simon said, adding "We've also been staging merchandise for the holidays at our import [distribution centers]. In-store inventory was up approximately 3.0% in the third quarter compared to last year. We've managed our inventory well, even as we add to our assortment."
     This holiday, Walmart U.S. expects its core customers to be focused on price, basics, toys for kids and practical gifts, while also budgeting for new technology items like eReaders and gaming systems.
     As was the case in the recent back-to-school and Halloween seasons, "we expect that a lot of the spending will come close to Christmas," Simon said. "We're expecting Q4 to be another quarter of sequentially improving comp sales."
     Walmart U.S. expects positive comps for the 13-week fourth quarter period, from October 30 to January 28 - in the range of a negative - 1.0% to a positive 2.0%. The division also plans to open: between 155 and 165 supercenters - of which 45 to 50 will be new units and the remainder conversions. Walmart is also planning on opening 30 to 40 medium- to small-format stores; and remodel more than 500 existing sites.
     The more than 580 stores already remodeled in 2010, completed by the end of the third quarter, "have helped drive our highest ever customer experience scores and will deliver a great shopping experience this holiday season," Simon said.
     Turning to its earnings guidance, Schoewe said that based on the company's expectations for the U.S. sales environment in the fourth quarter, Walmart is projecting diluted earnings per share from continuing operations attributable to Walmart to range from $1.29 to $1.33. This compares to an adjusted $1.26 per share last year, which included a net benefit of approximately six cents per share related to certain tax matters and restructuring charges.
     "Our updated fiscal year 2011 guidance of $4.08 to $4.12 earnings per share is an increase from the previous range of $3.95 to $4.05 per share," he added. "The full-year increase in our EPS guidance reflects the tax benefit from the third quarter, and our expectations for solid underlying operational performance by our segments in the fourth quarter."
     The company noted this new full year guidance assumes that currency exchange rates remain at current levels. The adjusted EPS for fiscal year 2010 was $3.73, which included the same six cents benefit.

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