Wal-Mart Earnings Hit New High

By Don Hogsett -- Home Textiles Today, 2/26/2007 12:00:00 AM

BENTONVILLE, ARK. —

Helped by continued strong growth in its international segment and rebounding domestic sales, Wal-Mart Stores reported that fourth-quarter profits grew by 9.8%, to $3.9 billion from $3.6 billion last year.

Overall sales at the world's largest retailer rose by 11.0%, to $99.1 billion from $89.3 billion last year. Retail sales climbed by 10.9%, to $98.1 billion from $88.4 billion. Membership and other income added $988 million to the top line, up 18.5% from $834 million during the same period a year ago.

Sales in core U.S. Wal-Mart Stores rose 6.7%, to $64.2 billion from $60.2 billion last year, helped by continued expansion. But same-store sales during the all-important Christmas quarter rose a modest 1.3%. The Sam's Club operation contributed $11.1 billion in sales, up 4.4% from $10.7 billion during the same period a year ago. Same-store sales in the no-frills operation rose twice as fast as in Wal-Mart Stores, advancing by 3.1%.

An increasingly important driver of both sales and profit growth, international sales shot up by 29.6%, to $22.7 billion from $17.5 billion last year. Off-shore sales now account for slightly more than 23% of all of Wal-Mart's business. Fueling the growth in its international business, Wal-Mart stepped up the pace of acquisitions. The company bought an additional stake in Seiyu Ltd. of Japan, and now owns about 53% of the company. It also acquired SonaeDistribuicao Brasil S.A., now calling it Southern Brazil. At the same time, it bought a majority 51% stake in Central American Retail Holding Co., or CARHCO, which it operates as Wal-Mart Central America.

Wal-Mart's U.S. stores recorded an operating profit of $5.2 billion, up 11.3% from $4.7 billion last year. Profits rose even faster at Sam's Clubs, up 15.4% to $435 million from $377 million the preceding year. Buoyed by the new acquisitions, profits in the international segment soared by 32.0%, to $1.5 billion from $1.1 billion a year ago, and now generate slightly more than 21% of the company's operating earnings.

An increasingly important contribution to the bottom line is made by capping inventories and slashing the amount of cash it lays out to stock its shelves. While sales increased by 10.9% during the closing quarter, inventories rose only about half as fast, rising by 5.6%, to $33.7 billion from $31.9 billion a year ago, putting increasing pressure on suppliers.

Average gross margin for the quarter improved by 30 basis points, or three-tenths of a percentage point, to 23.0% from 22.7% a year ago. But operating costs when measured as a percentage of sales climbed at a faster pace than margin growth, rising by 50 basis points, or half a percentage point, to 17.4% from 16.9% a year ago.

WAL-MART STORES INC.

Wal-Mart Segment Results