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Wal-Mart Stores’ ceo “disappointed” by 2Q performance

Bentonville, Ark. – Hit hard by a loss of $863 million on the sale of its lagging German retail operation, then further hobbled by weakening same-store sales as rising gas and interest prices dampen spending by its low-income customer base, Wal-Mart Stores Inc. reported its first earnings decline in a decade. Its profits slumped 25.7%, to $2.1 billion from $2.8 billion last year.

Wal-Mart Stores president and CEO Lee Scott said he was “quite honestly disappointed” during the second-quarter conference call.

Taking the bite out of the bottom line, the retailer rang up a one-time loss of $863 million on the sale of the faltering German business. At the same time, Wal-Mart has also cut a deal to sell its South Korean retail business.

But even without the loss from the German operation, the world's largest retailer has hit a major speed bump as higher gas prices and interest rates put the bite on its core customer, and operating profits rose a slender 7.9% during the second quarter, to $$5.1 billion from $4.7 billion last year.

Total sales, including international and Sam's Clubs, rose 11.3%, to $84.5 billion from $75.4 billion a year ago. But sales in U.S. Wal-Mart stores rose at a more modest pace of 6.9%, fueled mostly by continued expansion. And the acid-test gauge of same-store sales increased by only 1.7%, well behind the 2.6% gain in comps reported at Sam's Clubs.

At Wal-Mart Stores, Tom Schoewe, evp and cfo, said that the company is doing full remodels on more than 300 stores this fiscal year, with full conversion of the home, apparel and electronics departments. Of these remodels, 200 took place during the second quarter.

He added that there are another 1,800 stores set to be remodeled over the next 18 months.

“It means we are bringing latest look and fixtures to the apparel, electronics and home departments,” he continued. “Think of the 1,800 stores as special projects. And every store is not getting every update.”

Full remodels take 10 to 13 weeks to complete. Home department conversions take somewhat longer than the two to four-week period needed to convert the apparel and electronics departments in this project.

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