Wal-Mart profits up just 4.5% in 4Q

Don Hogsett, February 26, 2001

BENTONVILLE, AR -With sales held in check as consumers held on tight to their wallets and stayed away from the malls, fourth-quarter profits at Wal-Mart Stores Inc. edged up a slender 4.5 percent during the all-important Christmas quarter, rising to $2.0 billion from $1.92 billion last year.

The disappointing profit performance was well off the retailer's usual sizzling pace of double-digit earnings growth, and lagged far behind the 22.9 percent earnings gain recorded in the 1999 holiday quarter, and the 21.1 percent gain racked up in 1998.

Skimpy as the profit increase is, it still marked a milestone for the world's largest retailer, pushing quarterly earnings beyond the $2 billion mark for the first time ever. And the retailer still managed to beat Wall Street expectations, with earnings per share of 45 cents nudging past a consensus forecast of 44 cents per share.

Triggering the earnings disappointment, Wal-Mart sales moved up just 10.0 percent in a slowing environment for consumer spending, to $56.6 billion from $51.4 billion last year. Last year, by comparison, the retailer improved its sales by 20 percent. Same-store sales advanced by 3.1 percent, less than half of last year's growth of 6.3 percent. Same-store sales in the core Wal-Mart stores business grew by 3.0 percent, while sales at Sam's Club did even better, growing by 3.3 percent.

And with sales growth slowing in a weak retail environment, the company's core U.S. Wal-Mart stores were barely able to budge their operating profits, which grew just 1.5 percent in the holiday quarter.

Acting as a drag on the bottom line, costs grew higher as a percentage of sales, rising by 50 basis points, to 15.4 percent from 14.9 percent the prior year. Margins came under modest pressure, declining by 10 basis points, to 20.7 percent from 20.8 percent a year ago.

Breaking out results by retail segment, Wal-Mart reported:

-Wal-Mart stores: Sales rose by 11.8 percent, to $35.5 billion from $31.7 billion last year. Operating profits for Wal-Mart stores rose just 1.5 percent, to $2.8 billion from $2.7 billion last year;

-Sam's Club: Sales grew by 6.1 percent, to $7.5 billion from $7.1 billion last year. Operating profits grew even faster, rising by 8.5 percent, to $294 million from $271 million the prior year;

-International: Sales ticked up a modest 2.2 percent, to $10.1 billion from $9.8 billion the in 1999. Operating profits improved by 8.5 percent, to $490 million from $450 million the preceding year.

Boosted by strength earlier in the year, profits for all of last year burst through another big barrier, climbing by 17.1 percent, to $6.3 billion from $5.4 billion last year. Sales advanced by 15.9 percent, to $191.3 billion from $165.0.

Said Lee Scott, president and ceo, "It was a good year but a year that was not quite up to our high Wal-Mart expectations." Looking ahead, he noted, "In a difficult economic environment, we will spend almost $9 billion in capital expenditures and add approximately 8 percent to our retail square footage."

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