Tom Smart, Deseret Morning News
Wal-Mart Stores Inc. posted third-quarter earnings on Tuesday of $2.86 billion, an 8 percent rise that beat Wall Street expectations.

BENTONVILLE, Ark. — A year after its worst holiday sales season ever, Wal-Mart Stores Inc. may rebound to have a good season after finding the right mix of merchandise and marketing to complement its return to a focus on low prices.

A whiff of this already showed up when the nation's largest retailer posted third-quarter earnings Tuesday of $2.86 billion, an 8 percent rise that beat Wall Street expectations.

Retail experts say Wal-Mart's flagship U.S. stores may be in the midst of a turnaround after two years of a zigzag course between upscale and discount goods that has slowed sales growth.

Third-quarter sales at stores open at least a year, not counting fuel, were up 1.5 percent in the company's U.S. stores, same as a year ago. The company expects same-store sales for the fourth quarter to rise no more than 2 percent.

Michael P. Niemira, chief economist and director of research for the International Council of Shopping Centers, said an uncertain economy will send more shoppers to discounters for holiday purchases. Even if Wal-Mart's core lower income shoppers spend less, consumers with more money are likely to switch to discounters including Wal-Mart, he said.

At the same time, Niemira said Wal-Mart is working to address past problems.

"I actually think they may perform remarkably well this holiday season," Niemira said.

Last November, Wal-Mart reported its first negative monthly same-store sales in a decade as a push into higher-end fashion and home decor sold poorly and muddied its low-price image. For the period November through January, which includes most sales from gift cards redeemed after the holidays, same-store sales slowed to 1.3 percent last year from 7.2 percent in 2001-02.

Wal-Mart's early start in this year's holiday came under a cloud when it reported October same-store sales were flat for the namesake stores, minus Sam's Clubs, on the back of unseasonably warm weather that hit sales of clothes and other seasonal goods.

But Craig R. Johnson, president of consultancy Customer Growth Partners, said Wal-Mart has started a turnaround that is based in part on attractive prices on name-brand items in electronics and toys, two key holiday categories.

"My sense is that they are on the turnaround trail and that they will have a decent, a solid if not spectacular Christmas," Johnson said.

Even some Wal-Mart skeptics are coming around. Portfolio manager Patricia Edwards from Wentworth, Hauser & Violich in Seattle, which sold most if its Wal-Mart stock in 2005, said she now believes the chain is getting it right after a period of losing its edge.

Edwards said Wal-Mart is finding the right mix of merchandise that people want at competitive discount prices and doing so in remodeled stores with friendlier service. It has also changed its marketing to advertise those points, she said.

President and Chief Executive Officer Lee Scott said the company is showing improving trends in sales of home and apparel, an area in which Wal-Mart unsuccessfully sought to market to higher-income shoppers. Wal-Mart has switched back to its emphasis on price.

"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," Scott said in a recorded call Tuesday.

"The interesting thing is that they have it right, and they have it right at what I believe is going to be the right time," Edwards said.