Wal-Mart Cuts Inventory to Boost Profits

By Staff -- Home Textiles Today, 11/27/2006 12:00:00 AM

Bentonville, Ark. —

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.