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. Last Updated: 07/27/2016

Wal-Mart Rolls On, But Growth Harder




NEW YORK -- Propelled by strong growth in its superstores and international operations, Wal-Mart Stores reported another year of record sales and profits Tuesday. So, naturally, its stock declined.


The retailer, the largest in the world, said its revenues for the year ended Jan. 31 were a whopping $165 billion, a 20 percent increase from the previous year.


The increase was all the more impressive because it came on the heels of a 17 percent revenue expansion last year and a 12 percent increase the year before, proving that the juggernaut is only gaining speed.


To put those sales in perspective, total retail spending in the United States was $3 trillion in 1999, according to the U.S. National Bureau on Income Statistics. So, stripping out income from international stores, which was some $22 billion, Wal-Mart accounts for nearly 5 percent of the entire American pie.


Not only was sales growth big at Wal-Mart, it was broad. Every division, from Sam's Warehouse club to the discount stores, reported gains in sales and profits, and the international division actually saw revenues expand by 85 percent.


The retailer's profits rose 26 percent, or $1.25 a diluted share, for the full year. For the fourth quarter, the company earned 43 cents a share, ahead of the 42 cent estimate of Wall Street analysts, according to First Call/Thomson Financial.


Investors responded to the good-news fest by unloading stock. Wal-Mart's shares slid by 87.5 cents to $58, largely on concerns the retailer would be hard pressed to exceed this year's blistering growth. In a conference call with stock analysts, Les Scott, the company's chief executive, added to the worries by warning the company would have to contend with higher oil prices and higher costs of labor. Wal-Mart, which is based in Bentonville, Arkansas, and has about a million Americans working for it, is the largest employer in the nation.


Scott said the company's lower prices had in part fueled better-than-expected holiday sales in November and December.


"Consumer spending remained strong, with increases in the average check driving improvements in gross margins, while expenses increased at a slower rate, resulting in higher operating margins," said Scott, who was named to the top executive post in January.


However, Wal-Mart is also experiencing a cyclical problem. Retail stocks have been depressed by investors' concerns that continuing increases in interest rates by Federal Reserve policy-makers will dampen consumer demand in the upcoming year.


"The stock's softness is more a reflection of institutional investors' concerns about how a Fed hike will effect consumer spending," said Jeff Feiner, a retail analyst with Lehman brothers. "But the underlying fundamentals of the business will continue to be strong."


But Wal-Mart, which tends to err on the side of caution when predicting future growth, is positioned for another banner year. For starters, it is still expanding its supercenters. Supercenters are outsized stores that combine discount store merchandise with groceries and a pharmacy, and they have been a particularly profitable form of retailing.


Wal-Mart built 157 of these monsters last year and predicted an equally aggressive expansion for this year.


More important, Wal-Mart actually could benefit from higher interest rates. Who better to benefit from consumers watching the bottom line than a chain famous for its low prices? Gucci and Tiffany's might sweat a Fed increase, but Wal-Mart is full of consumer necessities.


In other news, the company declined to confirm or deny a report in the retail industry trade paper, Women's Wear Daily, that it was set to purchase Fruit of the Loom, the apparel manufacturer that filed for bankruptcy protection last December.