Nov. 13 (Bloomberg) -- Wal-Mart Stores Inc., the world's largest retailer, said it's ``optimistic'' about the holiday shopping season even as declining consumer spending may send the U.S. to the worst recession in at least three decades.

The retailer's outlook came as it reported today a 9.8 percent gain in third-quarter profit, beating analysts' estimates, and lowered its earnings forecast for the year because the stronger dollar is eroding overseas revenue.

The pronouncement signals Chief Executive Officer H. Lee Scott's strategy to emphasize lower prices is working, enabling Wal-Mart to win customers from Target Corp. and Macy's Inc. as shoppers curb spending. Investors have rewarded Wal-Mart with a 16 percent increase this year, the only one of 30 companies in the Dow Jones Industrial Average to rise.

``It is a great time to be Wal-Mart,'' Howard Davidowitz, chairman of Davidowitz & Associates, said today in a telephone interview. ``It sells everything you need cheap.''

Best Buy Co., the largest U.S. electronics retailer, yesterday forecast lower profit for the remainder of the year, citing a ``seismic'' shift in consumer spending.

After dropping at a 3.1 percent pace in the third quarter, U.S. consumer spending will fall 2.9 percent this quarter and 1.3 percent in the first three months of 2009, according to the a Bloomberg survey of economists. Spending, which accounts for more than two-thirds of the economy, has never decreased for three consecutive quarters in the postwar era.

Share Performance

Wal-Mart rose $2.31, or 4.4 percent, to $54.93 at 4:15 p.m. in New York Stock Exchange composite trading.

``I am optimistic about the holidays,'' Scott said today in a recorded telephone message to investors. Wal-Mart has spent more on discounts and is ``well positioned'' as consumers seek lower prices, he said.

Third-quarter net income rose to $3.14 billion, or 80 cents a share, the Bentonville, Arkansas-based company said. Excluding some items, third-quarter profit from continuing operations was 77 cents a share. Twenty-three analysts surveyed by Bloomberg estimated profit of 76 cents.

The results ``were surprisingly good given the weakness we've seen with consumers,'' Michael Shinnick, who helps manage $3 billion at 1st Source Bank, said today in a Bloomberg Television interview. The South Bend, Indiana-based firm owns Wal-Mart shares.

Fourth-quarter earnings will be $1.03 to $1.07 a share, trailing analysts' estimates of $1.11, with currency effects eroding profit by 6 cents, Wal-Mart said. Sales at stores open at least a year may rise by 1 to 3 percent.

Profit Forecast

Full-year profit will increase to $3.42 to $3.46 a share from $3.16 a year earlier, Wal-Mart said. It had projected $3.43 to $3.50. Analysts estimated $3.48.

``There will be a Christmas this year,'' Wal-Mart Chief Financial Officer Thomas Schoewe said in a telephone interview. ``There will be a need to buy presents.''

The retailer is aiming discounts on laptop computers, toys and other items at consumers ``who are cautious,'' Schoewe said. ``When it gets to the end of the month and they run out of money, their business reflects that.''

Third-quarter revenue climbed 7.4 percent to $98.6 billion. Wal-Mart's promotion of $6.98 pepperoni pizzas and price cuts on shampoo, apples and Sanyo Electric Co. flat-panel televisions lured consumers battered by job losses and shrinking credit.

International sales climbed 11 percent to $24.9 billion, outpacing an advance of 6.1 percent to $61.2 billion by Wal- Mart's U.S. stores. Revenue at the Sam's Club division rose 7.4 percent.

International Gains

``Our international performance is solid'' even with the negative impact of the dollar, Scott said on the call.

Wal-Mart generated 24 percent of revenue overseas in the year through Jan. 31, with stores in the U.K, Japan and elsewhere. The dollar has gained 21 percent against the euro, 23 percent against the Mexican peso, and 31 percent against the British pound over the past six months.

Some analysts anticipating the negative currency impact had cut their full-year profit projections. On Nov. 10, Charles Grom, an analyst at JPMorgan Chase & Co., lowered his estimate to $3.50 a share from $3.51.

Economists surveyed by Bloomberg News believe the U.S. economy will shrink at a 3 percent annual rate in the fourth quarter and decline at a 1.5 percent pace in the first three months of 2009, resulting the longest slump since 1974-75.

``Relative to all the other retailers, you're going to see that Wal-Mart is doing considerably better from this trade-down phenomenon,'' Jason Pride, research director at Haverford Trust Co., said today in a Bloomberg Television interview. The Haverford, Pennsylvania-based firm owns almost 1 million Wal- Mart shares among $6 billion in assets.

Wal-Mart earned $2.86 billion, or 70 cents a share, on revenue of $91.9 billion in the year-earlier quarter.

Department-store chains Kohl's Corp. and Nordstrom Inc. report earnings later today, while J.C. Penney Co. will release results tomorrow.

To contact the reporter on this story: Chris Burritt in Greensboro, North Carolina, at 1348 or cburritt@bloomberg.net.

Last Updated: November 13, 2008 16:34 EST