The Wal-Mart Blueprint

February 17, 2009

(bettertrades) - On Tuesday, February 17th, the world's largest retailer reported Q4 net income dropped 7% to $3.79 billion, or $0.96/share, down from $4.096 billion, or $1.02/share, during the year-ago period. Investors reacted favorably to the numbers, citing Wal-Mart's (WMT) 6% increase in sales to $71.5 billion for the quarter as consumers continue to turn to low-priced goods.

The Street had expected Wal-Mart to earn $0.99/share last quarter.

Revenues climbed 1.7% to $109.1 billion, while profits were eroded by expenses relating to lawsuit settlements (Wal-Mart announced in December it had settled 63 class-action lawsuits, paying out between $352 million and $640 million) and an appreciating dollar that cut into international sales at an 8.4% clip.

In January, Wal-Mart had previously forecasted earnings from continuing operations to tick in at $0.91 to $0.94 per share, downwardly revised from its original estimate of $1.03 to $1.07 per share.

Going forward, Wal-Mart expects to earn $0.72 to $0.77 per share in the first quarter, with full year earnings of $3.45 to $3.60 per share. The first quarter and full year projection widened its forecasts. Wal-Mart anticipates capital spending to be between $12.5 billion to $13.5 billion this year, below their previous forecast. New Chief Executive Mike Duke announced he expects Wal-mart to resume its suspended stock buyback program in the near-term.

Fears of declining margins for low-priced goods had made Wall Street investors skittish about Wal-Mart and the retail environment in general.

Shares of Wal-Mart jumped 3% at the open, bucking broad-market weakness that sent the S&P down nearly 4% out of the gate. So far through 2009, Wal-Mart shares are down roughly 17%, attributable to a global retracement in equity prices.

Wal-Mart has been consistently outperforming its peers on the sales front as it continues to gain market share. Most Wall Street analysts project the discount chain to remain the leading retailer going forward. The Bentonville, Arkansas-based retailer has capitalized on a weakening labor market via lower priced goods, specifically grocery discounts which account for over 40% of Wal-Mart's revenue.