Wal-Mart Rings Up Gains

Shares climb after retail giant beats earnings targets and offers a more optimistic outlook.
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Updated from 7:47 a.m. EST

Wal-Mart

(WMT) - Get Report

topped third-quarter earnings estimates and lifted its profit forecast for the year, noting improved results at its U.S. division and a tightened focus on inventory.

The profit beat and relatively optimistic outlook helped ease some fears about the retail giant's position ahead of a holiday season that is largely expected to be sluggish. Shares of Wal-Mart were jumping $2.32, or 5.4%, to $45.64 early Tuesday.

The Bentonville, Ark., company reported third-quarter earnings of $2.86 billion, or 70 cents a share, up from $2.65 billion, or 63 cents a share, a year earlier. The results included a 1-cent-a-share tax-related gain.

Last month, Wal-Mart bumped up its third-quarter earnings per share estimate to a range of 66 cents to 69 cents from an earlier forecast of 62 cents to 65 cents -- a surprise move amid continuing weakness in its home furnishings and apparel categories as well as an overall lackluster retail environment.

Analysts, on average, most recently expected a profit of 67 cents a share, according to Thomson Financial.

Wal-Mart's revenue rose to $91.95 billion from $84.47 billion a year earlier. Analysts projected revenue of $91.77 billion.

Same-store sales, or sales at stores open at least a year, inched up 1.5%.

"Our results for the third quarter reflect the improved performance of our U.S. operations. Both Wal-Mart Stores U.S. and Sam's Club increased profits faster than sales. Wal-Mart International posted a solid quarter as well," said Lee Scott, Wal-Mart president and chief executive, in a statement. "Our focus on managing inventory this quarter was very positive."

At the Wal-Mart Stores U.S. division, operating income jumped 11.1%, while sales climbed only 6.4%. In raising its guidance last month, the company pointed to improved expense controls at the division, which has been struggling over the last two years with meager sales growth.

For the fiscal year, Wal-Mart now expects earnings from continuing operations of $3.13 to $3.17 a share. In its last quarterly report, the retailer's shares were slammed after it trimmed its earnings target by a dime to $3.05 to $3.13 a share.

Wall Street anticipates fiscal-year earnings of $3.09 a share.

For the key holiday fourth quarter, Wal-Mart projected earnings of 99 cents to $1.03 a share, offering some downside to analysts' target of $1.02. The company expects same-store sales to be flat to up 2%.

The holiday season is expected to be a tough one for retailers, who largely have been reporting weak sales in recent months amid fears of an economic slowdown. Wal-Mart has been aggressively slashing prices in preparation for the holiday season under the banner, "Save Money. Live Better." In early October, it

began discounting toys, which are usually the biggest end-of-the-year sales drivers.

"During the Christmas and holiday season, our price leadership position will benefit both our customers and the Company," Scott said Tuesday. "We have set the stage for a successful fourth quarter."

In an acknowledgement that it can no longer grow as fast as it used to, Wal-Mart told analysts and investors at its annual meeting last month that it was cutting back on its capital expenditures, which will total $15 billion this year vs. its earlier forecast of $15.5 billion. The company is moderating the growth of its so-called supercenters but plans to accelerate its expansion overseas.