Wal-Mart cautious despite 13.4% boost in profits

Wal-Mart Stores Inc. reported a 13.4 percent increase in fourth-quarter profits that beat Wall Street estimates, but the world's largest retailer also offered a cautious — and disappointing — profit outlook Tuesday as it struggles with higher interest expenses resulting from international acquisitions.

Wal-Mart also faces rising marketing costs as it tries to lure more upscale shoppers.

The retailer forecast first-quarter earnings per share between 58 and 62 cents and said it expected to earn $2.88 to $2.95 for fiscal 2007, which ends next Jan. 31. Analysts surveyed by Thomson Financial projected per-share earnings of 62 cents in the first quarter and $2.98 for the year.

The downbeat outlook reflects the fact Wal-Mart is finding it harder to sustain profit growth in the high teens as in previous years. Given its huge U.S. presence, much of the company's growth will now have to come from international markets, where startup costs are higher, according to Ken Perkins, president of Retail Metrics LLC, a research firm in Swampscott, Mass.

Meanwhile, many analysts expect Wal-Mart's upscale marketing strategy to take time to pay off as the retailer tries out merchandise including trendier women's clothes in 3,200 U.S. stores, hoping to regain sales growth momentum lost to smaller rivals such as Target Corp. Its new strategy helped push the cost of selling in the fourth quarter up 8 percent from a year earlier, to $69 billion

"The fact of the matter is that when you're doing what is essentially a turnaround and trying to get feet back under something, it doesn't always go that smoothly," said Patricia Edwards, a portfolio manager and analyst at Wentworth, Hauser & Violich in Seattle, which manages $6.6 billion in assets and holds about 63,000 Wal-Mart shares.

"They have a lot of moving parts," Edwards said.

The company's shares didn't take much of a beating by investors — its stock slipped 0.8 percent, or 36 cents, to $45.74 on the New York Stock Exchange. But Wal-Mart's shares have fallen more than 10 percent over the past year amid concerns about slower growth and criticism from union-backed groups over how it treats its workers.

Wal-Mart said net income rose to $3.6 billion, or 86 cents per share, for the quarter ended Jan. 31 from $3.2 billion, or 75 cents per share, a year earlier. Minus 2 cents per share from a one-time tax benefit, it earned just above the 83 cents per share projected by analysts surveyed by Thomson Financial.