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Grocery Sales Give Wal-Mart Lift in Difficult Q2

BENTONVILLE, Ark. -- Steady sales of food and consumables helped Wal-Mart Stores, Inc. during a challenging second quarter in which the world's largest retailer suffered its first profit slip in a decade.

For the quarter ended July 31, Wal-Mart posted net income of $2.08 billion, or 50 cents per share, down from $2.81 billion, or 67 cents per share, a year ago. The loss included an $863 million charge for the sale of its German stores to Metro AG.

Net sales for the quarter were $84.524 billion, an increase of 11.3 percent over the second quarter of fiscal 2006. Income from continuing operations for the quarter was $2.984 billion, an increase of 4.6 percent compared to last year.

"Our sales and earnings from continuing operations for the quarter are up, and we continue to make progress on inventory," said Lee Scott, Wal-Mart Stores, Inc. president and c.e.o., in a statement. "Wal-Mart's every day low prices and value are more important than ever to customers. Some of the same issues affecting our customers -- higher utility costs and gas prices -- are impacting many corporations, including Wal-Mart.

"We find it encouraging that we continue to grow market share in food and consumables during this time," said Scott.

Scott added that the company continues its focus on growth and return on invested capital. "We also are transforming our stores through remodeling, expanded merchandise offerings, and customer service initiatives," he said.

Richard D. Hastings, v.p. and senior retail sector analyst at Bernard Sands LLC, said Wal-Mart "was able to continue to grow share in food and consumables, confirming our thesis that Wal-Mart's supermarket business would continue to grow during a period of weaker performance in general merchandise -- something that will impact the competition in a similar way, especially those retailers who do not have the supermarket operations to smooth things out."

The retailer, Hastings said, "showed its ability to leverage many resources to smooth out operating income year over year, which came in at $5.1 billion, up 7.9 percent from the same period one year ago." However, he noted that the operating income growth showed "significant drag," as this number dipped below the sales growth number, which was up 11.4 percent.

"Some of this dip resulted from changes to their international operations and related charges, but there was insufficient margin expansion at home to offset the impact of these and other pressures," said Hastings.

Net sales at U.S. operations for the quarter were $55.389 billion for the quarter, a 6.9 percent increase from last year. Sales at Sam's Club were $10.472 billion, a 5.0 percent increase.

Total U.S. comparable sales for the quarter increased 1.7 percent, which includes a 1.5 percent increase for Wal-Mart Stores, and a 2.6 percent increase for Sam's Club. Total U.S. comparable sales for the six-month period were up 2.7 percent, which is comprised of a 2.6 percent increase for Wal-Mart Stores and a 3.4 percent increase for Sam's Club.

For the second quarter, the Wal-Mart Stores segment, including supercenters, had segment operating income (income before net interest expense, income taxes, unallocated corporate overhead, minority interest, and discontinued operations) of $4.159 billion, an increase of 4.2 percent, compared with $3.992 billion in the second quarter of fiscal 2006.

Net sales for the six months ended July 31, 2006, were $163.359 billion, an increase of 11.9 percent over the first six months of fiscal 2006. Income from continuing operations for the six months ended July 31, 2006, increased 5.2 percent to $5.645 billion, up from $5.365 billion in the same prior year period.
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