Walmart reversed a string of nine consecutive quarters of comparable-store sales declines in its flagship domestic division although net earnings just missed analysts’ average forecast.

Walmart, comparable-store sales, net earnings, third quarter, Walmart U.S. division, Bill Simon, president and chief executive officer, Sam's Club, Walmart International, Walmart president and CEO Mike Duke, president and CEO Brian Cornell, chief financial officer Charles Holley

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U.S. sales up but net falls at Walmart in third quarter

November 15th, 2011

BENTONVILLE, Ark. – Walmart reversed a string of nine consecutive quarters of comparable-store sales declines in its flagship domestic division although net earnings just missed analysts’ average forecast.

Net sales for the world’s largest retailer rose 8.2% to $109.52 billion, driven by a 20.3% jump in revenues at its international division, which booked sales of $32.38 billion. International’s top line included a $1.3 billion currency exchange benefit, and on a constant currency basis, sales gained 15.3%. On a constant currency basis, Walmart’s consolidated net sales grew 6.8% to $108.2 billion in the quarter ended October 31.

The big story, however, was the long-anticipated return to comparable-store sales growth in the Walmart U.S. division. Net sales for the unit increased 2.7% to $63.84 billion, as comparable-store results rose 1.3% — a direct reversal of the 1.3% drop recorded in the fiscal 2011 quarter.

The comparable-store increase was driven by higher average transactions that partially offset lower customer traffic. Executives point out, though, that comparable-store traffic improved sequentially by 160 basis points over the second quarter. On a departmental basis, sales of grocery, health and wellness and hard lines, which together account for about 75% of Walmart U.S.’s top line, all grew in comparable stores.

"Three key elements drove the comp improvement in the third quarter," said Bill Simon, president and chief executive officer of Walmart U.S., in a statement. "Our focus on expanded assortment, product innovation and local relevance improved merchandise offerings throughout the store and customers responded. Productivity initiatives improved in-stock levels and we continue to drive price leadership in all our stores."

Sam’s Club turned in another outstanding performance, as sales rose 9.5% to $13.3 billion. Excluding fuel sales, revenue increased 6.2% to $11.8 billion. Comparable-club sales including fuel jumped 9%, but still grew an impressive 5.7% with fuel factored out.
Both customer traffic and the average ticket (excluding fuel) were higher at Sam’s Club, and president and CEO Brian Cornell pointed out that the performance marked the seventh consecutive quarter of sequentially increasing comparable-club sales.

All three divisions recorded solid increases in operating profit. At Walmart U.S., in fact, operating profit grew faster than sales, rising 5.1% to $4.63 billion. Walmart International notched a 14.2% rise in profit to $1.4 billion that included a currency exchange benefit of $48 million. At constant exchange rates, operating income grew 10.3%.

Operating income at Sam’s Club, meanwhile, rose 6.3% to $390 million.

Consolidated income from continuing operations fell 2.5% to $3.5 billion, or 97 cents per diluted share, just missing the average estimate of 98 cents per share among analysts surveyed by Thomson Reuters. However, earnings per share came in precisely in the middle of management’s forecast range of 95 cents to $1 per share.

The bottom-line decrease was attributable to a $191 million tax benefit that boosted net earnings in the prior-year quarter.

"Every business segment is stronger today than it was a year ago, and we delivered solid earnings growth for our shareholders in the third quarter," said Walmart president and CEO Mike Duke. "Both Walmart U.S. and Sam’s Club exceeded comp-sales guidance and I’m pleased that the sales momentum positions us exceedingly well for the holidays. We also are pleased with the growth in both sales and operating income for Walmart International."

Considering the solid quarterly performance and the prevailing economic environment, management predicted fourth-quarter earnings that bracket the average estimate of $1.45 per share among analysts. "Based on our views of the economic and sales environment in all our markets and our expectations for the holidays, we expect fourth-quarter fiscal 2012 diluted earnings per share from continuing operations attributable to Walmart to range between $1.42 and $1.48," said chief financial officer Charles Holley.

Incorporating that projection, the company expects full-year earnings between $4.45 and $4.51 per share, compared with fiscal 2011’s result of $4.18 per share, which included 11 cents per share from tax benefits.