Excerpt from our Wall Street Breakfast, a one-page summary of this morning's key market-moving and stock-moving stories:
Summary: Wal-Mart's shares rose 2% yesterday when it reported Q3 earnings that beat Street expectations. For the quarter ended Oct. 31, net income rose nearly 12% to $2.65 billion, or $0.63/share, from $2.37 billion, or $0.57/share, a year earlier. Net sales totaled $83.5 billion, a 12% increase. Profit came in at $0.62/share versus analysts' forecast of $0.59. The news was particularly welcome following Wal-Mart's report last month that same-store sales growth would be below expectations in October and flat in November for the first time in a decade. Still, analysts cautioned against rising expectations in the run-up to the holiday season. Wal-Mart has started a program of aggressively discounting toys, home electronics and small appliances, and is seeing significant sales increases in newer segments of those areas (e.g., MP3 players). Those gains are being offset, however, by declines in more mature segments (e.g., DVD players). Q3 same-store sales increased 1.5%, well shy of the 4.6% quarterly increase posted by competitor Target. Target's Q3 profit rose 16%, ahead of forecasts, and sales rose 11%. Target earned $506 million, or $0.59/share, up from $435 million, or $0.49/share, during the same period last year. Analysts were expecting EPS of $0.55. Target President Gregg Steinhafel said Target doesn't respond to Wal-Mart's limited time, limited quantity deep discount offers. On Wal-Mart's long-running discounts, Steinhafel claims Target has often matched them before they have been advertised. In either case, Wal-Mart-initiated super-low prices are likely to force other retailers to discount their merchandise, eroding profit margins.
Related links: Media coverage: Business Week. Commentary: Discount Electronics Retailers, Led By Wal-Mart, Launch First Christmas Sale Salvo • When Goliath Stumbles: Wal-Mart, Target and Costco • Holiday Sales: Will Retailers See Red? • Wal-Mart and Other Retailers Suffer Weak Sales in Run-Up to Holidays • Target: Hitting the Mark. Conference call transcripts: Wal-Mart F3Q07 (Qtr End 10/31/06) Earnings Call Transcript • Target F3Q06 (Qtr End 10/28/06) Earnings Call Transcript.
Potentially impacted stocks and ETFs: Wal-Mart Stores Inc. (NYSE:WMT), Target Corp. (NYSE:TGT) • ETFs: Market 2000 HOLDRs (NYSEARCA:MKH), iShares Russell 1000 Growth Index (NYSEARCA:IWF), iShares Russell 3000 Growth Index (IWZ), PowerShares FTSE RAFI US 1000 (NYSEARCA:PRF)
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