Wal-Mart Cuts Inventory to Boost Profits
November 27, 2006-- Home Textiles Today,
Helped by continued deep cuts in stockpiles and rapid growth in its international operations, which offset sluggish sales in its core U.S. store base, Wal-Mart Stores Inc. pushed third-quarter profits up by 11.5% to $2.6 billion from $2.4 billion last year.
A disproportionate share of the earnings increase came not out of merchandising operations, but from savings generated as the world's largest retailer continued to cap its merchandise inventories — pushing the warehousing function upstream to suppliers.
Indeed, stockpiles grew only half as fast as overall sales during the quarter, by 6.2%, compared
to a 12.0% increase in sales.
Buoyed by acquisitions that boosted its overseas sales, the top line expanded by 12.0% to $83.5 billion from $74.6 billion a year ago. International results far outpaced U.S. results; sales abroad raced ahead by 33.7% to $19.2 billion, while sales in U.S. Wal-Mart stores moved ahead by 7.8% to $54.2 billion. But with its low-income consumer base still pressured by higher costs and a softening housing market, same-store sales in the United States. Wal-Mart stores were up a sluggish 1.5%. Sales in the Sam's Club business were muted as well, with overall sales up 1.9% to $10.2 billion, and comps up 1.8%.
Putting profits under some pressure, costs grew at a faster pace than margins. Measured as a percentage of sales, operating costs rose by 70 basis points, or seven-tenths of a percentage point, to 19.4% from 18.7% a year ago. Margins expanded, but at a slower rate than expenses, by 50 basis points, or five-tenths of a percentage point, to 23.7% from 23.2% a year ago.
Acting as a further slight drag, the retailer recorded a widening loss from its minority share in joint ventures, an $84 million deficit, compared with $73 million a year ago.
WAL-MART STORES INC.
|Qtr. 10/31 (x000)||2006||2005||% change|
|a. Third-quarter results include $65 million in interest income, compared with $57 million during the same period a year ago; an $84 million loss from the company's share of a joint venture, up from $73 million last year; and a $53 million profit from discontinued operations, compared with a year-before loss of $73 million.
b. Nine-month results include $196 million in interest income, compared with $165 million last year; a loss of $254 million form its share in a joint venture, up from $209 million a year ago; and an $894 million loss from discontinued operations, compared with a prior-year loss of $147 million.
|Oper. income (EBIT)||4,465,000||4,098,000||9.0|
|Per share (diluted)||0.63||0.57||10.5|
|Average gross margin||23.7%||23.2%||—|
|Oper. income (EBIT)||14,065,000||12,820,000||9.7|
|Per share (diluted)||1.76||1.82||-3.3|
|Average gross margin||23.6%||23.2%||—|
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