Wal-Mart sees fortunes turning on holiday sales

NEW YORK (Reuters) - Wal-Mart Stores Inc expects a return to broad discounts and wider product selection to finally reverse its U.S. fortunes this holiday shopping season after six straight quarters of falling sales.

The world's largest retailer has faced increased competition from lower-priced dollar stores that have lured shoppers hardest hit by the economy and high unemployment.

It is also retreating from a poorly executed reduction in the number of products on its shelves and a failed attempt to increase traffic with thousands of temporary price "rollbacks."

Under Chief Executive Mike Duke and new U.S. chief Bill Simon, Wal-Mart has been bringing back many of those products and offering low prices on a wider array of goods.

Wal-Mart said on Tuesday that the strategy would help raise U.S. same-store sales in the fourth quarter.

"Walmart U.S. will be the price leader this holiday season, and I am confident about improving comp trends for the fourth quarter," Duke said in a statement.

It also posted a higher third-quarter profit, buoyed by cost cuts and international sales, and raised its full-year earnings forecast. Wal-Mart shares rose as much as 2.6 percent early Tuesday and were up 1.1 percent in afternoon trading.

"The next couple quarters in general are certainly going to be a test for new management and viewed as a barometer of how they're doing," said Edward Jones analyst Matt Arnold.

Wal-Mart sales at U.S. stores open at least a year fell 1.3 percent in the third quarter as its low- to middle-income customers stick to tight budgets, prompting skepticism among some analysts.

"The fact of the matter is comps continue to be negative in the U.S. division and traffic is not there," Wall Street Strategies analyst Brian Sozzi said. "I need to see traffic come back in the fourth quarter."

It is still seeing a pickup in sales at the start of the month, a sign that many consumers are spending once they receive their paycheck or government unemployment benefits and waiting for their next wages to come in.

"It's every bit as pronounced as we've seen it," said Charles Holley, who will become chief financial officer in December, about the paycheck cycle. "The consumer is still very focused on price and value."

U.S. retail sales posted their strongest gain in seven months during October, according to new Commerce Department data. [ID:nN15239736] Wal-Mart's third-quarter U.S. sales accounted for 7 percent of U.S. retail sales, excluding autos, in the same period.

Not all store chains see the same growth prospects. Top home improvement chain Home Depot Inc cut its full-year sales forecast as U.S. consumers put off expensive renovations. Saks Inc , which caters to an upscale clientele, reported higher-than-expected profit and forecast higher holiday sales.

A HOLIDAY BOOST

Wal-Mart's official forecast for the fourth quarter calls for same-store sales in range of a 1 percent decline to a 2 percent rise, but CFO Tom Schoewe said he was confident the company would report an increase.

"I'd just point you to the middle of the range, which is clearly in positive territory," Schoewe told reporters. "Those are the results we're looking for in the fourth quarter."

Wal-Mart said its profit rose to $3.44 billion, or 95 cents a share, in its third quarter ended October 31, from $3.15 billion or 82 cents a share a year earlier.

Earnings per share, excluding a tax benefit, were in line with the analysts' average forecast of 90 cents, according to Thomson Reuters I/B/E/S.

Net sales rose 2.6 percent to $101.2 billion.

Wal-Mart expects fiscal 2011 earnings per share of $4.08 to $4.12, up from a previous forecast of $3.95 to $4.05, reflecting the tax benefit and expectations of solid performance in its fourth quarter. Analysts were expecting a profit of $4.02 per share.

Sales at the company's international unit rose 9.3 percent to $26.92 billion. Sales at the Sam's Club warehouse club chain rose 2.7 percent to $12.14 billion.

For the holidays, Wal-Mart is offering free shipping at its website through December 20, in a potential blow to e-commerce leader Amazon.com Inc . A Wal-Mart Black Friday flyer published by a shopping website earlier this week showed heavily discounted electronics that strike at Amazon's gadget sales.

In addition to retooling its strategy on discounts to focus on everyday low prices, the company is offering more local produce, which could lure shoppers with higher incomes, and is experimenting with smaller-format stores.

Richard Hastings, a strategist with Global Hunter Securities, also pointed to improvements in Wal-Mart's shopper loyalty trends based on customer surveys.

"The last time we saw this type of uptick was in May 2007 when their business began sequential improvements. This could be a turning point similar to 2007," he said.

Hastings was referring to Wal-Mart's improved sales after it abandoned an attempt to compete with rival Target Corp by stocking more upscale goods like trendy clothing.

(Reporting by Michele Gershberg and Brad Dorfman. Editing by Lisa Von Ahn, Matthew Lewis and Robert MacMillan)