Wal-Mart Rallies on Profit Boost

Shares climb 3% after the retailer says it's getting costs under control.
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Updated from 11:29 a.m. EDT

Wal-Mart

(WMT) - Get Report

shares climbed 4% Thursday after the giant retailer surprised Wall Street by boosting its earnings estimate for the third quarter, despite tepid sales.

The stock recently was up $1.70 to $47.29.

The Bentonville, Ark., company said it now expects to make 68 cents to 69 cents a share for the quarter, up from its previous forecast of 62 cents to 65 cents a share. Analysts polled by Thomson Financial expected earnings of 63 cents a share.

The company said it had improved expense controls at its Wal-Mart Stores division, which expanded profit margins. That helped offset relatively meager sales growth.

Wal-Mart said same-store sales rose 1.4% from a year ago in September, at the lower end of its forecast for a 1% to 3% rise. Analysts expected a 1.8% increase in same-store sales, or sales at stores open at least a year.

Sales in established Wal-Mart stores inched up 0.8%, and those at warehouse-club operator Sam's Club jumped 4.4%.

The company said sales of apparel and home goods -- two continuous weak spots for the company -- continued to be sluggish.

"In addition, unseasonably warmer weather in much of the country, coupled with tighter consumer spending, negatively impacted key seasonal categories," Wal-Mart said.

The report came as many retailers reported sluggish sales for September, including Wal-Mart rival

Target

(TGT) - Get Report

and department-store chains like

J.C. Penney

(JCP) - Get Report

and

Macy's

(M) - Get Report

. While several chains attributed the drop to warmer-than-average weather, the companies are also dealing with inventory missteps and the threat of tighter consumer spending.

Wal-Mart said its customers are concerned about their finances, especially the cost of living. The company has sought to bring in more customers by promoting an improved lifestyle through its lower prices, adopting the tagline "Save Money. Live Better."

Mark Husson, an analyst for HSBC, says that Wal-Mart has unfairly been written off by the investor community.

"While the outlook for the holiday season is not great, in our view, Wal-Mart's new tag line, plus an aggressive price message, plus a defensive 33% grocery in its sales mix, means that it ought to do at least as well as its peers," he wrote in a research report.

Richard Hastings, a retail analyst for Bernard Sands, adds that Wal-Mart was more protected than rivals from the weather factor in September in part because of its ample stock of electronics, which tend to fare better in sales against apparel.

"That's the sweet spot in the consumer story," Hastings says.