Wal-Mart ups quarterly view, Target misses forecast

NEW YORK (Reuters) - Wal-Mart Stores Inc (WMT.N) on Thursday reported September sales at U.S. stores open at least a year toward the low end of its outlook, but the world's largest retailer raised its quarterly earnings estimate, citing lower expenses.

Meanwhile, September sales at rival Target Corp (TGT.N) missed its own lowered forecast.

Target also said full-year earnings should be below $3.60 per share. Earlier, it had said profit could be slightly more or less than that figure.

Wal-Mart shares rose nearly 4 percent, while Target stock fell slightly.

Investors expected weak September sales as unseasonably warm weather crimped demand for cold-weather items and consumers continued to battle high food and fuel costs as well as a deteriorating housing market.

Wal-Mart, which caters to lower-income consumers, said monthly sales had suffered because of the weather and tighter consumer spending. Target, which tends to attract higher-income shoppers, cited fewer customers in its stores.

"I have to wonder if Wal-Mart's very aggressive back-to-school actually did take a bite out of Target," said Morningstar analyst Joseph Beaulieu.

"Typically most people think of Target customers and Wal-Mart customers as being completely distinct groups," he said, "but I think there is some cross-shopping going on."

To jump-start back-to-school shopping and improve lagging sales at its U.S. stores, Wal-Mart cut prices by as much as 50 percent in July on 16,000 items like backpacks and school supplies. The effort spurred stronger-than-expected August sales.

To ride the momentum of the back-to-school price cuts, Wal-Mart began reducing prices on hot toys on September 30 for the holiday selling season.

SEPTEMBER SALES

Wal-Mart's U.S. same-store sales rose 1.4 percent in September, below the analysts' average view of 1.9 percent, according to Reuters Estimates. Wal-Mart had forecast a rise of 1 percent to 3 percent.

September same-store sales rose 0.8 percent at the company's U.S. namesake stores and increased 4.4 percent at the Sam's Club warehouse division.

Wal-Mart said toy sales were hurt by safety recalls and tough comparisons with a year ago, when Fisher-Price, a unit of Mattel Inc MAT.N, introduced its T.M.X. Elmo doll, creating an early holiday must-have item.

Total sales for the five weeks ended October 5 rose almost 10 percent to $34.41 billion from $31.37 billion a year earlier.

At Target, September same-store sales rose 1.2 percent. The discount retailer initially forecast a rise of 4 percent to 6 percent, but last month it lowered that outlook to a range of 1.5 percent to 2.5 percent, citing weak traffic.

Target's sales for the five weeks ended October 6 rose 6.2 percent to $5.19 billion from $4.89 billion.

OCTOBER SALES

Although Wal-Mart's U.S. same-store sales outpaced Target's in September, the trend should reverse in October.

Wal-Mart forecast that October U.S. same-store sales would be flat to up 2 percent, while Target expects a rise of 3 percent to 5 percent.

But Wal-Mart raised its third-quarter earnings view, citing improved margins and lower costs in the first two months of the period, which began in early August.

A Wal-Mart spokesman said the retailer had been able to reduce expenses in part through programs it has already announced, like its new system that schedules hourly employees based on the number of shoppers in a store.

Wal-Mart now expects third-quarter earnings of 66 cents to 69 cents per share from continuing operations, up from a previous forecast of 62 cents to 65 cents.

Analysts on average expect 63 cents per share, according to Reuters Estimates.

Wal-Mart shares rose $1.71, or 3.8 percent, to $47.30 in afternoon New York Stock Exchange trading, while Target fell 25 cents to $65.52.