Retail giant tips a merry holiday shopping season

Wal-Mart is offering more upscale items to lure shoppers less affected by energy costs. Picture / Reuters

CHICAGO - Wal-Mart Stores yesterday posted its smallest quarterly profit gain since the 2001 US recession but said holiday prospects looked good despite steep energy prices that have hit consumer spending.

The 4 per cent profit growth matched Wall Street forecasts in a quarter marred by hurricanes that temporarily closed hundreds of stores and sent energy prices soaring. Analysts were also pleased that the retailer managed to contain labour costs.

Shares in the world's biggest retailer edged higher.

"Even with the lingering impacts of the hurricanes and the impact of higher energy prices, I believe we will have a good holiday season," chief executive Lee Scott said on a prerecorded call that was more upbeat than last quarter, when a gloomy forecast sent shares lower across the retail sector.

Bentonville, Arkansas-based Wal-Mart said net income rose to US$2.4 billion ($3.5 billion), or 57USc a share in the third quarter, which ended on October 31, in line with analysts' expectations. A year earlier, it earned US$2.3 billion, or 54USc a share.

Wal-Mart, which has vowed to cut prices aggressively and ramp up advertising this holiday season, said an improving US economy and internal efforts to spruce up merchandise and stores raised its hopes for next year as well.

Results in the latest period include costs from hurricane-relief efforts, expenses from product-warranty programmes and a gain from the settlement of Visa/MasterCard antitrust litigation. Taken together, those items hurt profit by 2USc a share, or US$80 million after taxes.

Emme Kozloff, retail analyst with Sanford Bernstein, said the third quarter could represent the bottom in Wal-Mart's fundamental performance but said that was already reflected in the stock price, which has risen 16 per cent from a nearly five-year low hit in September.

Quarterly sales rose 10.1 per cent to $75.4 billion, while sales at its US stores open at least a year - a key retail measure known as same-store sales - rose 3.8 per cent.

The November-December holiday shopping season is the busiest period for Wal-Mart and other retailers, so Wall Street has been eager for insight into how consumer spending is looking in the face of rising energy bills.

The bright forecast comes four days after rival Target Corp gave what analysts viewed as a disappointing fourth-quarter outlook, in part because of expectations for a fiercely competitive holiday shopping season.

Wal-Mart has been adding more upscale merchandise such as high thread-count sheets and plasma televisions in the hope of attracting wealthier shoppers who are less sensitive to steep energy prices.

The retailer has said that many of those customers are already shopping at Wal-Mart for food but go elsewhere for clothing or home decor.

The strategy puts Wal-Mart on a collision course with Target, which has found a niche selling trendy-but-affordable clothing and home decor.

Wal-Mart's shares are down about 7 per cent year-to-date amid concerns about slowing growth and a pile of lawsuits accusing the company of mistreating workers. In contrast, Target's stock is up more than 12 per cent in that time.

- REUTERS