Wal-Mart: Less Inflation Pass-Along

MARK HAMSTRA

BENTONVILLE, Ark. — Wal-Mart Stores here last week said it believes it is raising its retail grocery prices less than its competitors to cope with inflation.

In a conference call discussing earnings for the fiscal fourth quarter and year that ended Jan. 31, Eduardo Castro-Wright, president and chief executive officer of the Wal-Mart Stores division, said the company saw cost inflation on “grocery food categories including dairy, meats and bread.”

“We believe, however, that rate of inflation pass-along in our stores is less than our competitors in the grocery category, saving customers money and building loyalty,” he said. “We can do this because of our operating efficiencies.”

The company said fourth-quarter operating income at its core U.S. division rose by 5.3%, to $5.3 billion, compared with the fourth quarter of a year ago. Operating income at Sam's Club was up 2.5%, to $466 million, and international operating income rose 14.5%, to $1.74 billion.

Overall net income for the three-month quarter, which ended Jan. 31, was up about 4%, to $4.1 billion, on sales of $106.3 billion, up 8.3%. Sales grew 5% at Wal-Mart Stores, which includes supercenters, discount stores and Neighborhood Markets in the U.S., 6.3% at Sam's Club and 18.8% in the company's international division.

Net income for the year rose about 12.8%, to $12.73 billion, on sales growth of 8.6%, to $374.5 billion.

As previously reported, Wal-Mart U.S. saw same-store sales gains of 1.7% in the fourth quarter, including 1.6% at Wal-Mart Stores and 2.5% at Sam's Club, all excluding fuel.

Analysts were pleased with Wal-Marts' results.

“We believe Wal-Mart has the right strategy for the right time,” said Adrianne Shapria of Goldman Sachs, New York, in a report.

She based her outlook on several factors, including a widening price gap between Wal-Mart and Target, easy comparisons with year-ago first-half results, improving results in apparel and home goods, and other factors.

Deborah Weinswig of Citigroup Global Markets, New York, said she believes Wal-Mart's “sharp pricing message and everyday low prices will resonate well in this environment as consumers trade down.”