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Wal-Mart Home Sales Remain Soft in Quarter

Slow Home Sales Cited as a Factor

Bentonville, Ark. — At the dusk of the second quarter, Wal-Mart Stores' home category sales results were unchanged from recent memory — soft.

But it looks like new days are dawning for "certain home products" as Wal-Mart has started to experience, as of this month, encouraging results in both sales and customer response from its new home pad test piloting in several markets in the United States, said Eduardo Castro-Wright, evp, president and ceo, Wal-Mart Stores division.

Castro-Wright made the comments during the 1,033-discount stores and 2,349-supercenters retailer's second-quarter earnings call.

But a turnaround is still far in the distance, as consumers suffer through economic hardships.

"We're experiencing soft sales in home products driven by the slowdown in housing," Castro-Wright said.

"In addition, Wal-Mart's softness in the home and apparel categories has been compounded by the difficulties we have had this past year and have shared with you."

More specifically, noted Wal-Mart president and ceo Lee Scott: "U.S. consumers continue to be under difficult pressure economically. The top concerns among our customers are economic — money and finances, the increase in the cost of living, and gas prices. It is no secret that many customers are running out of money toward the end of the month. The paycheck cycle is in fact more pronounced now that it ever has been."

To help remedy this, Wal-Mart said it has increased the amount of rollbacks by more than 20% this year in its U.S. stores, and it said it continues to strengthen its product offerings with more name brands on store shelves.

In the meantime, the company's focus has been on more trafficked, sales-churning areas — grocery, pharmacy and entertainment, all of which were doctored with merchandising improvements.

"However, having said that, merchandising overall is still not where it needs to be. The U.S. team is working hard to improve it," Scott said.

Added Castro-Wright: "[Wal-Mart Stores'] sales were driven by grocery, pharmacy and entertainment. Our pricing leadership is paying off nicely with market share gains in grocery, pharmacy and entertainment."

On the global front, Wal-Mart elaborated on its recent 50-50 partnership with Bharti Enterprises in India.

Charles Holley, evp, finance and treasurer, said that under this joint venture, Bharti Wal-Mart Private Limited will operate business-to-business wholesale cash-and-carry stores as well as a back-end supply chain management business.

The first wholesale cash-and-carry facility is targeted to open by the end of 2008; 10 to 15 facilities are expected to open during the next seven years.

"[India] is first country Wal-Mart has entered organically in 10 years," Holley said. "We will initially target Tier 2 and 3 cities in northern India where our business-to-business customers, like Bharti and others, as well as restaurants, hotels and other businesses, are currently served by fragmented and inefficient distribution systems. We expect this business customer to respond well to our product offering."

WAL-MART STORES, INC.

Qtr. 7/31 (x000) 2007 2006 % change
Net revenue $91,990 $84,524 8.8
Oper. income (EBIT) 5,293 5,104 3.7
Net income 3,105 2,083 49.0
Per share (diluted) 0.76 0.50 52.0
Average gross margin 23.3 23.6
SG&A expense 17,130 15,741 8.8
Six months
Net revenue $177,377 $163,359 8.6
Oper. income (EBIT) 10,143 9,600 5.7
Net income 5,931 4,698 26.2
Per share (diluted) 1.44 1.13 27.4
Average gross margin 23.4 23.6
SG&A expense 33,379 30,683 8.8


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