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 its worst recession in at least three decades.
The retailer's outlook came as it reported Thursday 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 that CEO 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 in its stock price 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,” said Howard Davidowitz, chairman of Davidowitz & Associates. “It sells everything you need cheap.”
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Best Buy Co., the largest U.S. electronics retailer, on Thursday 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, a Bloomberg survey of economists projects U.S. consumer spending will fall 2.9 percent this quarter and 1.3 percent in the first three months of 2009. Spending, which accounts for more than two-thirds of the economy, has never decreased for three consecutive quarters in the postwar era.
Wal-Mart rose $2.31, or 4.4 percent, to $54.93 in New York Stock Exchange composite trading.
“I am optimistic about the holidays,” Scott said 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, said the company, based in Bentonville, Ark. 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 in an interview.
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.
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.