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Wal-Mart (WMT)
Wal-Mart Welcomes Quarterly Profit
Beleaguered investors can breathe a small sigh of relief today thanks to early indications that the American public will not be resorting to creating homemade gifts to give friends and loved ones during the holidays this year. Retail giant and Dow bellwether, Wal-Mart, just released its third quarter earnings report and the outlook is better-than-expected. While it may be too early to tell just how generous consumers will be in the final months of 2007, shoppers have been hitting the stores earlier this year on incentives and deals not typically released until the day after Thanksgiving. Wal-Mart is confident that the changes they've made in their operations over the past few months have provided the cushion they needed to stay profitable, but will these earlier-than-usual promotions actually translate to higher-than-average sales?
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Wal-Mart greeted Wall Street today with a better-than-expected earnings report for the third quarter, prompting a much-needed rebound in early trading. The Bentonville, Arkansas-based retail giant posted earnings of $2.9 billion, or 70 cents a share, this quarter, up from $2.6 billion, or 62 cents a share, during the same period last year. Analysts had called for earnings of 67 cents per share on revenue of $91.67 billion, but revenue actually increased 8.9 percent to $91.95 billion. The results not only beat expectations but also led company leaders to raise its full-year outlook. The most successful divisions during the past quarter were groceries, health and wellness, entertainment and Halloween products, while the pharmacy division jumped 8 percent over last year.
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Wal-Mart has enacted some new strategies to help the bottom line, and they seem to be paying off. Wal-Mart CEO Lee Scott said, "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. Our focus on managing inventory this quarter was very positive." This reflects the shifted focus on reducing costs by keeping a close watch on expenses and better managing company resources. After being criticized for employee relations and labor management practices earlier this year, the company is continuing to utilize systems that schedule hourly employees based on the number of shoppers in a store, resulting in shorter wait times for customers but an "on-call" schedule for workers. The efficiencies have helped curb expenses, though, regardless of how employees have reacted.
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The other side of the equation to improving profits is increasing sales. Amongst the company's strategies to woo consumers is a refocused attention on prices and incentives to bring shoppers into the stores earlier in the season. Wal-Mart, as the world's largest retailer, has lead the charge in rescheduling the seasonal shopping event known as “Black Friday” from the day after Thanksgiving to nearly two months earlier. By slashing prices as soon as October 1 as opposed to the end of November, Wal-Mart is hoping to tempt customers to shop early and continue shopping throughout the fourth quarter. Sales on hot holiday items such as TVs and computers were already up significantly during the quarter as compared to last year, indicating that the strategy is working. The question remains, however, if the shopping frenzy will fizzle as shoppers fulfill their gift lists ahead of schedule. Wal-Mart is optimistic though, stating, "During the Christmas and holiday season, our price leadership position will benefit both our customers and the company. We have set the stage for a successful fourth quarter."
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