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Wal-Mart: Always Low Prices, High Profits


Discount juggernaut powers through dark days for retail.


Wal-Mart (WMT) says August sales increased 3%, beating the company's forecast of a 1% to 2% rise for stores open at least a year.

The nation's largest retailer cut prices on groceries, consumer electronics and back-to-school supplies. Wal-Mart says September same-store sales may rise 2% to 3%.

Overall, sales at Wal-Mart stores rose 2.8% in August, while sales at Sam's Club, a warehouse chain, rose 4.2% - or 7.5%, including sales of fuel.

"The underlying business performance for Wal-Mart US continued to show strength and the improved relative performance has resulted in market share gains," Eduardo Castro-Wright, head of the company's domestic operations, said in a prepared statement.

But overall, August sales in the retail sector were uneven. Discounters drew shoppers looking for bargains in a downbeat economy, while many major department stores and apparel retailers reported declines.

Many shoppers cut back on spending after gasoline climbed above $4 a gallon. A barrel of oil recently fetched $109.91 on the New York Mercantile exchange - about 25% below the peak of $147.27 reached on July 11.

Declining gasoline prices will help, but other negative trends for retailers include lackluster consumer confidence, lower payrolls, and inflation, especially in food. Consumers feel squeezed and the housing market remains sour so there will be no quick rebound.

More bad news for retailers: Most of the gains from the economic stimulus checks sent to taxpayers this spring appear to be ancient history. This will likely force retailers to offer sales and discounts in an effort to attract shoppers.

  • Costco (COST), the largest wholesale club operator in the U.S., said sales rose 9%, but the company missed analysts' estimates of a 9.9% gain.

  • Upscale retailer Saks (SKS) said sales dropped 5.9%.

  • Nordstrom (JWN) reported a 7.9% decrease.

  • Mid-price retailer J.C. Penney (JCP) reported a 4.9% drop in August sales. Analysts expected the company's sales to decline about 6.3%.

  • Kohl's (KSS) reported a 5.8% decline in sales, not as severe as the 7.8% drop analysts expected but missing its projection of a decline of 2% to 4%.

  • Limited Brands (LTD), operator of Victoria's Secret and Bath & Body Works, said sales fell 7%. Analysts expected a decline of 6.9%.

This suggests sluggish US consumer spending during 2008's holiday season.

International shoppers may offset some of the decline, but overall spending between November and January is expected to be so-so.

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