UPDATE 3-Wal-Mart profit up, U.S. same-store sales fall

Tue Aug 16, 2011 9:13am EDT

* Q2 EPS $1.12 excluding items vs Street view $1.08

* U.S. Walmart same-store sales down 0.9 percent

* Shares rise 3.6 percent (Adds company, analyst comments; updates stock activity)

By Jessica Wohl

CHICAGO, Aug 16 (Reuters) - Sales at Wal-Mart Stores Inc's U.S. discount stores open at least a year fell 0.9 percent during its second quarter, marking the ninth straight quarterly decline as it tries to lure back bargain hunters.

Still, profit beat analyst expectations as international sales, sales at the company's Sam's Club unit and a push to rein in expenses helped offset U.S. same-store sales that came in below analysts' forecasts.

Wal-Mart shares rose 3.6 percent in premarket trading on Tuesday.

The world's largest retailer stressed its commitment to low prices and widening its price gap versus competitors, following analyst reports in recent weeks that suggested those gaps have narrowed in areas such as food.

"You can tell by their commentary, their commitment to everyday low price, it seems like they're going to get more aggressive with pricing actions coming up," said ITG Investment Research analyst John Tomlinson.

Wal-Mart is also increasingly using everyday low pricing in international markets. In countries such as Brazil, it is introducing the practice of having low prices all the time rather than focusing on limited time discounts.

But the United States is by far its biggest market, and many of Walmart's U.S. customers are struggling, Chief Executive Mike Duke said during a recorded call.

"They're trading down to stretch their budgets, buying a lower-priced brand of detergent, moving from branded canned goods to private label and purchasing half gallons of milk instead of gallons," Duke said.

Also, more shoppers are relying on government aid to help them pay for food and other necessities, Walmart U.S. CEO Bill Simon said on the call.

PROFIT UP

The world's largest retailer earned $1.09 per share from continuing operations, up from 97 cents a year earlier and near the high end of its forecast of $1.05 to $1.10.

Excluding a decline in the market value of currency derivatives, acquisition costs and other items, earnings were $1.12, compared with the average analyst estimate of $1.08, according to Thomson Reuters I/B/E/S.

Sales at U.S. Walmart stores open at least a year excluding fuel fell 0.9 percent, near the low end of the company's forecast of down 1 percent to up 1 percent. Analysts on average were expecting a decline of 0.6 percent, according to Thomson Reuters data.

Wal-Mart said U.S. same-store sales improved each month during the quarter. Fewer customers visited Walmart U.S. stores, but those who shopped spent more on average, the company said.

The U.S. Walmart business accounted for $260.3 billion, or 62.1 percent of sales, in fiscal 2011. Customers there have moved to even lower-priced dollar stores as unemployment remains high and inflation cuts into people's spending power.

For the year, Wal-Mart expects a profit of $4.41 to $4.51 a share, compared with its previous forecast of $4.35 to $4.50. The company forecast a profit of 95 cents to $1 for the third quarter.

The goal is still for same-store sales in that unit to turn positive by the end of the year, said Simon.

For the third quarter, same-store sales in that unit should be down 1 percent to up 1 percent, he said.

Wal-Mart shares rose to $51.78 in premarket trading from Monday's close of $49.98. (Reporting by Jessica Wohl and Brad Dorfman. Editing by Robert MacMillan)

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