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Wal-Mart First-Quarter Profit Rises 3.8%, Bolstered by International Sales

Wal-Mart Stores Inc. (WMT), the world’s largest retailer, posted a 3.8 percent gain in first-quarter profit, beating analysts’ estimates as growth abroad helped make up for U.S. sales declines.

Profit from continuing operations rose to 98 cents a share, including a 1-cent foreign exchange gain, Wal-Mart said today. That compared with the 95-cent average of estimates compiled by Bloomberg. Sales abroad climbed 6.2 percent on a constant currency basis, boosted by China, Chile and Mexico.

Sales at U.S. Wal-Mart stores open at least a year dropped 1.1 percent, the eighth decline in a row. Customers are still struggling with economic uncertainty, buying more generic items instead of their more costly name-brand counterparts, executives said today on a pre-recorded call.

“The report was adequate at best,” Brian Sozzi, an analyst at Wall Street Strategies, said in a note to clients today. “Other players continue to steal market share” in the U.S. The New York-based analyst recommends selling the shares.

Wal-Mart, based in Bentonville, Arkansas, also forecast that the change in second-quarter fiscal 2012 comparable-store sales in the U.S. would be between negative 1 percent and positive 1 percent. Profit will be $1.05 to $1.10 a share, Wal- Mart said. Analysts on average anticipate $1.08.

Retail Hurdles

Profit in the quarter ended April 30 climbed to $3.43 billion from $3.3 billion, or 87 cents a share, a year earlier.

The pace of job growth and higher gas prices remain hurdles for discount retailers. The jobless rate climbed to 9 percent in April, the first increase since November. Regular fuel reached $3.99 on May 4, the highest since July 2008, according to AAA, the nation’s biggest automobile organization. Customers are making fewer trips to stores because of the surge in gas prices, U.S. stores chief Bill Simon said today on the call.

More than half of Wal-Mart’s U.S. sales come from food. The company has raised prices on some grocery items, particularly dairy and meat, as food suppliers boost their own prices to cope with raw-ingredient costs, Chief Financial Officer Charles Holley said on a separate call with reporters.

Wal-Mart fell 52 cents to $55.54 at 4 p.m. in New York Stock Exchange composite trading. The shares have advanced 3 percent this year, compared with a 5.7 percent gain for the Standard & Poor’s 500 Index.

Duke’s Strategy

Chief Executive Officer Mike Duke plans to open smaller stores and expand Wal-Mart’s Internet presence to attract shoppers. Big-box retailers including Target Corp. (TGT), Staples Inc. (SPLS) and Best Buy Co. have looked to smaller stores as consumers trim their spending and purchases shift to Web retailers such as Amazon.com Inc. (AMZN)

Simon said Wal-Mart will “accelerate” the development of Neighborhood Market grocery stores, which average around 40,000 square feet, or one-third the size of a typical supercenter. He said same-store sales at Wal-Mart’s 183 Neighborhood Market locations rose 4 percent in the quarter, as they attracted more shoppers. Wal-Mart will open about 40 smaller stores this year.

Last week, Wal-Mart agreed to buy a stake in Chinese Web retailer Yihaodian, and last month the chain acquired Kosmix, a Silicon Valley e-commerce startup focused on social media. Wal- Mart has also begun offering home delivery of fresh groceries in San Jose, California.

Web Presence

Wal-Mart’s website attracted more customers and larger order sizes in the first quarter, Simon said. The company doesn’t disclose sales for the online unit. Duke told investors in April that growing Wal-Mart’s online business in the U.S. and internationally is one of his top priorities.

Wal-Mart’s international business comprises more than 4,600 stores in 15 countries. Total sales in the quarter topped $100 billion, with about one-fourth coming from overseas. The retailer has opened 487 stores abroad over the past 12 months, international chief Doug McMillon said in a prerecorded call today.

“International remains the key growth driver for our company,” said Duke, 61. “Despite improvements in some areas of the economy, core U.S. customers are still stretched. We still have work to do.”

Wal-Mart is speeding up its store openings in China, where it had 333 outlets at the end of April. The China operations generated $7.5 billion revenue, or 1.8 percent of the company’s $420 billion total, last year, according to Asian chief Scott Price. Sales in China surged 12 percent in the quarter.

Sales in Chile, which Wal-Mart entered with its 2009 acquisition of retailer D&S, advanced 12 percent on a constant currency basis. In Mexico, revenue increased 6.9 percent. Japan was the only international unit to post a sales decline in the quarter, owing to the earthquake and tsunami this year.

“The best thing they have going for them is the international side of the business,” said Maggie Gilliam, president of retail consultant Gilliam & Co. in New York.

To contact the reporter on this story: Matthew Boyle in New York at mboyle20@bloomberg.net

To contact the editor responsible for this story: Robin Ajello at rajello@bloomberg.net

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