Wal-Mart Hits A Speed Bump

By Staff -- Home Textiles Today, 8/21/2006 12:00:00 AM

Bentonville, Ark. —

Hit hard by a loss on the sale of its lagging German retail operation, then further hamstrung by weakening same-store sales as its core low-income customer base is squeezed by rising gas prices and credit-card interest rates, Wal-Mart Stores reported its first earnings decline in a decade; its second-quarter profits slumped 25.7%, to $2.1 billion from $2.8 billion last year.

Taking the bite out of the bottom line, the world's largest 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 off another of its offshore units, its South Korean retail business.

But even without the loss from the German operation, Wal-Mart hit a major speed bump as higher gas prices and interest rates put the bite on cash-strapped consumers who can least afford it, and operating profits rose a slender 7.9% during the second quarter, to $5.1 billion from $4.7 billion last year.

Income from continuing operations rose just 4.6%, to $3.0 billion from $2.9 billion a year ago. And swollen by the losses out of Germany, the retailer recorded a $901 million loss from discontinued operations, compared with a $48 million loss the year before.

Overall sales, including Wal-Mart U.S., Sam's Clubs and international, rose 11.3%, to $84.5 billion from $75.4 billion a year ago, with the greatest growth coming from offshore operations, which climbed higher by almost a third, rising 31.9%, to $18.7 billion from $14.2 billion. Driving international growth were three acquisitions that took place since the second quarter of 2006: an additional stake in Japan-based Seiyu Ltd., of which Wal-Mart now owns about 53%; the purchase of Sonae Distribuicao Brasil, known as Southern Brazil; and a majority stake in Central American Retail Holding Company.

Sales in U.S. Wal-Mart Stores rose at a slower pace of 6.9%, to $55.4 billion, while Sam's sales grew by 5.0%, to $10.5 billion, in both cases fueled largely by continued unit expansion. Same-store U.S. Wal-Mart sales grew at a sluggish pace of 1.5%, while Sam's grew its comps at a faster pace of 2.6%.

Wal-Mart Stores Inc.

Second-Quarter Segment Results