19 February, 2008

Economy Problems, What Problems? Wal-Mart's Solid Earnings

On a trading day spurred by earnings reports and a spike in Energy prices, Wal-Mart (WMT) took center stage yet again. Wal-Mart reported earnings, and the numbers were well received on Wall Street. Even if US sales growth was only about 6% the rest of Wal-Mart's International Empire gave Investors plenty to smile about and bid up.

The results, an overall increase in profit of 4% and sales of 8%, not headline grabbing by themselves, but with as vast a global footprint as Wal-Mart, impressive nonetheless. The increasing International focus was crucial, making up 25% of income. The giant retailer produced income of $1.02/share, which was inline with analyst estimates even if top line revenue came in slightly below ($106.27Billion v $106.9Billion). Although company executives were less than enthralled at the economic proposition for consumers in the US, providing profit guidance for 2008 within the range of analysts certainly put some of the worst fears at ease.

Net sales in its International operations were the key drivers of growth with an 18% spike in sales. The highlight of these International successes came from its British grocer Asda. Asda exceeded virtually all forecasts for 2007 and showed the strong diversity, especially abroad of the Wal-Mart ever-extending reach. Seems like no matter what the economic picture is, low prices will attract consumers. Wal-Mart seems to be getting back to this core motto, which is something seen very favourably by Investors.

For the year, the US operations still weigh heavily on the bottom line as US sales in 2007 accounted for $240Billion while International sales were only $90Billion. However the shift in focus and growth will be on the International stage and Wal-Mart is too big of a player to let itself be handcuffed by weakening economic metrics at home.

Say what you will about boring old Wal-Mart as a stock, but it has held up and is relatively at the same point it was a year ago, while still paying out 22 cents a quarter. It isn't too bad, but the yield at under 2% certainly has room to grow. Yes it is a Market Place Behemoth, a retailer with a 200Billion market cap, but if there's something safe to own, with great International potential upside, Wal-Mart would be a safe bet.

Disclosure: Author does not own WMT

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