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Wal-Mart (WMT)
Wal-Mart Shakes Off Recession Worries in Latest Quarter
It seems like falling consumer confidence and fears of recession hasn't knocked every retail company out of contention. Bentonville, AR-based Wal-Mart, the world's largest retailer, announced increases in profit and revenue that mostly met analysts' expectations. With consumers tightening their belts and looking for bargains Wal-Mart seems poised to benefit handedly, but with oil prices remaining high and the R word ("recession") being mumbled on Wall Street can the company manage to keep margins intact without dropping prices too much?
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The retail giant posted solid profit during its latest quarter, and indicated an increase in revenue from holiday shopping. Net income clocked in at $4.1 billion, up from $3.94 billion during the same time last year. The news was certainly a breath of fresh air for investors, who expected that tightening credit and falling home prices would keep Wal-Mart's bargain-seeking customers away from stores. Company executives indicated that a renewed focus on low prices helped keep sales buoyant despite a worsening economy. Revenue increased from $99billion last year to $107 billion on the back of a 5% bump in U.S. sales. Analysts were expecting a somewhat higher revenue figure, but the positive news was good enough to push shares up a little over 1% in morning trading.
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After attempting to tap into trendier and more affluent markets over the past year, the company went back to basics and focuses on keeping prices low. While the attempt at competing with the likes of Target (TGT: Charts, News, Offers), which some consumers see as being a more high-end version of Wal-Mart, did prove to be somewhat fruitful, the company seems to have profited most by increasing its grocery and electronic offerings. Offering groceries, which by itself is low-margin, increased the traffic to many of the company's stores, helping increase sales of non-grocery items. As consumers continue to tighten their wallets and look for bargains, Wal-Mart could come out on top as the clear choice.
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This retro outlook helped Wal-Mart keep its base clientele in a time when many retail companies report dismal outlooks. Unlike the recent earnings release from electronics retailer Best Buy (BBY: Charts, News, Offers), Wal-Mart was able to shake off the January blues and meet estimates. Economic conditions will be a major factor in the company's 2008 outlook. Shipping costs are likely to cut down on profit margins as the price of oil continues to hover around $100 a barrel, and a 2005 initiative to improve the fuel efficiency of the company's truck fleet is still a work in process. The company forecasted growth lower than what some analysts expected, though Wal-Mart also underestimated its revenue for the latest quarter. The store stands to benefit from the recent tax rebate issued by the U.S. government.
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International growth continues to fuel the company's profit making ability, with sales abroad accounting for a quarter of company profit. The company's foray into developing countries, including China, will most likely be the focus of future growth. As the incomes and living standards of countries such as China increase, more and more people are likely to visit Wal-Mart stores for their shopping needs.
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Shares of Wal-Mart have climbed 5.2% so far in 2008, but have only increased 3% from February of last year. The company was hit hard by the summer market downturn, with shares falling from $50 in June to a low of $42 in September. Shares are currently trading $1.50 below the 52-week high of $51.48 and $8 above the 52-week low of $42.09.
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