Wal-Mart 3Q profit up but sees sales shortfall

Associated Press Modified: November 15, 2012 at 4:45 pm •  Published: November 15, 2012

NEW YORK (AP) — Wal-Mart Stores Inc. reported a 9 percent increase in net income for the third quarter, but revenue for the world's largest retailer fell below Wall Street forecasts as its low-income shoppers continue to grapple with an uncertain economy.

The discounter issued a fourth-quarter profit outlook that fell short of Wall Street expectations, and the company's stock price slid nearly 4 percent.

Wal-Mart is considered an economic bellwether because the retailer accounts for nearly 10 percent of nonautomotive retail spending in the U.S. The company's latest results show that many low-income Americans — it's estimated that the typical Wal-Mart customer has an average household income of between $30,000 and $60,000, rents their homes and doesn't own stock — continue to struggle even as the housing and stock markets are improving.

The disappointing revenue comes as Wal-Mart, like other retailers, is preparing for the busy winter holiday shopping season in the U.S. next week. The period, which runs roughly from November throughout December, is a time when stores can make up to 40 percent of their annual revenue. Wal-Mart has said that it plans to offer deeper discounts and a broader assortment of merchandise during this year's season to draw in shoppers.

"Macroeconomic conditions continue to pressure our customers," said Charles Holley, Wal-Mart's chief financial officer. "The holiday season is predicted to be very competitive but we are well prepared to deliver on the value and low prices our customers expect."

The disappointing revenue results come a year after Wal-Mart's U.S. namesake business turned a corner by reemphasizing low prices and restocking stores with thousands of basic items that it had gotten rid of in an overzealous bid to reduce clutter.

During the third quarter of last year, the division reversed nine straight quarters of declines in revenue at stores opened at least a year, which is considered a key measure of a retailer's health. The U.S. namesake business has recorded five consecutive quarters of gains since the division rebounded, including a 1.5 percent increase in the third quarter.

But the third-quarter gain is just shy of the 1.8 percent increase analysts polled by Thomson Reuters were expecting. It's also a slowdown in growth from the 2.2 percent gain the business posted in the second quarter and the 2.6 percent increase it had in the first quarter.

Analysts say that Wal-Mart's previous results had benefited from the increase in prices shoppers were paying for groceries due to inflation for some items, a trend that is now subsiding. They also say that Wal-Mart is facing tougher revenue comparisons from a year ago when its business first began to rebound.

Ken Perkins, president of Retail Metrics, a research company, said Wal-Mart's revenue is headed in the right direction. But he cautioned that the company will need to continue to keep prices low in order to compete with rivals that have stepped up discounting.