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Liveblogging Wal-Mart's earnings call: Profits up 11.5%

Posted Nov 14th 2006 7:25AM by Amey StoneAmey Stone RSS Feed
Filed under: Earnings reports, Live coverage, Wal-Mart (WMT)

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Wal-Mart Stores, Inc. (NYSE: WMT) got the business day off to rollicking start reporting an 11.5% jump in third-quarter profits. Net income was $2.65 billion, or 63 cents a share, which met analysts' expectations. Sales increased 12% from a year ago to $83.5 billion.

The stock closed yesterday at $46.32 and in pre-market trading as of 7:15 am was up to $46.75. We'll see where the stock is by the end of the conference call, which is scheduled to start at 7:30 a.m. ET.

7:30 a.m.: Lee Scott, president and CEO, says "although pleased" with results, sales were "softer than hoped." He went over the numbers in the press release. Looking ahead, he promised the most aggressive pricing ever for the holidays in toys and electronics.

"You'll hear the word Christmas," in stores and in advertising, he promised.

This month Wal-Mart is opening 21 stores in U.S. "just in time for holiday shopping," he says. Now he's going over jobs created at new superstores.

In international, he promises a "bright future." New stores in Mexico are doing well and Canada superstores are open. Meantime, the company has exited South Korea and Germany. India is developing.

Next year Wal-Mart will open 60 million square feet of retail space in 600 new locations, says Scott. That's slightly less square footage growth. He promises to make the most "efficient use of capital." He highlights efforts to control "capital expenditures."

Now he's crowing about the $4 generic drug program Wal-Mart launched recently, along with other ways Wal-Mart has "contributed to society" -- "not just in the U.S., but around the world."

7:42 a.m: CFO Tom Schoewe is going over the financials in more depth. He points out that "if we remove all the noise in the numbers," Wal-Mart gross margins would have increased. That is despite transportation cost increases.

Interest expense is up because of higher interest rates and new debt from acquisitions. But he says progress with inventory management has offset some of that increase.

He expects the company's annual tax rate to be 34%.

Sale of South Korea resulted in $103 million pre-tax gain. Germany sale was a $918 million loss, but only $55 million was recorded in third quarter (the rest in the second). There were tax gains to offset the loss.

7:50 a.m.: John Menzer is now discussing U.S. operations. Although he wasn't thrilled with results, he said he was glad the company was successful in improving "customer relevancy, market segmentation, and improving labor productivity and gross margins."

Interesting to hear him talk about all the improvement in labor productivity when labor has been such a sore spot for the company's public relations efforts!

He says strong sales generated by last year's hurricanes made for "difficult comparisons" this quarter. Strong sales last November will make the fourth quarter comparisons difficult as well.

Disappointments include women's apparel -- which wasn't as successful as hoped -- although he says it is working in more urban neighborhoods.

Price rollbacks are underway. "We are not waiting until the day after Thanksgiving," for discounts, he says. He has mentioned the $398 laptop a few times now!

Hey, he mentioned online for once -- he encouraged shoppers to visit stores and online!

8:00 a.m.: International operations: currency gains helped. More discussion of what was strong (Canada, Mexico), what wasn't. 16.8% sales gain in Mexico with 16.3% increase in customer count and average ticket size. Canada had increases in sales in mid-single digits.

In the United Kingdom, there is "continued improvement" in operating income, due to higher gross margins and cost-cutting programs. High single-digit sales growth and increased market share in U.K.'s Asda division.

Brazil was a head of plan, Argentina "continues to deliver," Puerto Rico sales were up thanks to store expansion (but PR is experiencing an economic downturn).

China grew in mid-double digits. Japan showed "progress." Now, back to Tom to discuss Sam's Club.

8:07: Sam's Club increased sales 4.5% in the first nine months of the year. Enjoyed operating income growth, but also an increase in operating expenses. Inventory levels grew at a higher rate than sales in the quarter. He expects comparable store sales to improve in the fourth quarter (doesn't seem a stretch goal!).

8:10: That's the end of the call! The "digital replay" service just cut me off (hey, when did they tape this thing anyway, last week?). Wal-Mart, which didn't make a webcast available, has also apparently chosen to end the call without including any analyst Q&A -- that's where investors usually get the meat on the bones of the earnings release.

Wal-Mart had some decent results this quarter to report and the stock is now up to $47.35 in pre-market trading (from yesterday's close of $46.32). Still, I have to say, in terms of investor relations, Wal-Mart seems to be heading in the wrong direction.

Tags: earnings, third quarter, ThirdQuarter, Wal-Mart, wmt

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