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Wal-Mart increases third quarter profits despite weak US sales performance

|Includes: Wal-Mart Stores, Inc. (WMT)

Wal-Mart (NYSE: WMT) posted a 9.5% increase in third quarter profits on Tuesday, as sales in Mexico and Brazil helped offset weak revenue from its US stores.

For the third quarter ending October 31, 2010, the company reported attributable net income of $3.44 billion, or $0.95 per diluted share, up from $3.14 billion, or $0.82 per share in the same period last year. Excluding a $0.05 tax benefit, earnings per share in the recent third quarter would have been $0.90 per share, the company said, matching analyst forecasts.

The company's international business helped boost sales, as core customers from its US business were hit by the recession and ever-high unemployment rates.

Net sales for the third quarter increased a marginal 2.6% to $101.2 billion, below analyst expectations of $102.5 billion. Total revenue was helped by 9.3% year-over-year growth in international sales to $26.9 billion. US net sales slipped 0.1% during the period to $62.2 billion, while revenue for US Walmart stores open at least a year declined 1.3% in the third quarter, compared to a 0.5% fall a year earlier.

The company said that the average ticket was down in U.S. stores, as was traffic in the quarter.

Despite this, the company expects US sales to improve in the next three-month period, as Walmart will refocus on its low pricing strategy and offer free shipping deals for the holiday season, as a way to pull in low-income shoppers.

Last year, the company eliminated a number of grocery items on its shelves in a marketing effort to declutter its stores, which proved unsuccessful for the retailer. It is now working on restocking these items as well as more lower-priced items, and the company also announced last week that it would offer free shipping on 60,000 online items through December 20.

"Walmart U.S. will be the price leader this holiday season, and I am confident about improving comp (comparable sales) trends for the fourth quarter," said president and CEO Mike Duke.

Indeed, the retailer expects US comparable store sales to range between a decline of 1% to positive growth of 2% for the fourth quarter, compared to a 2% fall in the year-ago quarter. Fourth quarter earnings per share are also anticipated to come in between $1.29 to $1.33 per share.

Based on these forecasts, Walmart has decided to raise it full-year earnings outlook to a range of $4.08 to $4.12 per share from previous guidance of $3.95 to $4.05 per share. Analysts expected $4.02.

The company re-purchased $3.9 billion in shares during the third quarter, raising this year's total to $11.0 billion.

Walmart had $10.6 billion in cash and equivalents at quarter-end. It was up 1.2% in pre-market trading on Tuesday.

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