Wal-Mart Cuts Inventory to Boost Profits
By Staff -- Home Textiles Today, 11/27/2006
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.
| Qtr. 10/31 (x000) | 2006 | 2005 | % change |
| Sales | $83,543,000 | $74,596,000 | 12.0 |
| Oper. income (EBIT) | 4,465,000 | 4,098,000 | 9.0 |
| Net income | 2,647,000a | 2,374,000a | 11.5 |
| Per share (diluted) | 0.63 | 0.57 | 10.5 |
| Average gross margin | 23.7% | 23.2% | — |
| SG&A expenses | 19.4% | 18.7% | — |
| Nine months | |||
| Sales | $246,902,000 | $220,527,000 | 12.0 |
| Oper. income (EBIT) | 14,065,000 | 12,820,000 | 9.7 |
| Net income | 7,345,000b | 7,640,000b | -3.9 |
| Per share (diluted) | 1.76 | 1.82 | -3.3 |
| Average gross margin | 23.6% | 23.2% | — |
| SG&A expenses | 19.0% | 18.5% | — |
| a. Third-quarter results include $65 million in
interest income, compared with $57 million during the same period a year ago;
an $84 million loss from the company's share of a joint venture, up from $73
million last year; and a $53 million profit from discontinued operations,
compared with a year-before loss of $73 million. b. Nine-month results include $196 million in interest income, compared with $165 million last year; a loss of $254 million form its share in a joint venture, up from $209 million a year ago; and an $894 million loss from discontinued operations, compared with a prior-year loss of $147 million. |
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