By  on August 16, 2006

Wal-Mart Stores Inc. on Thursday reported a decline in profits for the first time in a decade.

The world's largest retailer said second-quarter net income was $2.08 billion, or 50 cents a share, a 26 percent drop compared with $2.8 billion, or 67 cents a share, in the same period the previous year. Sales in the quarter ended July 31 totaled $84.5 billion, an 11 percent increase. But the sales came in lower than the $86.2 billion analysts had estimated.

Factors negatively impacting Wal-Mart's results in the quarter included the sale of its retail operations in Germany; the company took an $863 million charge related to the deal. Wal-Mart also has sold its business in South Korea, but that is expected to generate a gain for the period in which the sale closes.

Excluding the costs of exiting Germany, Wal-Mart earned 72 cents a share in the second quarter, up from 68 cents a share in the prior-year quarter.

President and chief executive officer H. Lee Scott Jr. said during a conference call that he was "quite honestly disappointed in the sales performance of Wal-Mart U.S. Some of the same issues affecting our customers, such as higher utility costs and gas prices, are impacting corporations like Wal-Mart, as well."

Sales at U.S. stores rose 6.9 percent in the second quarter. Same-store sales grew only 1.7 percent, the smallest increase in six consecutive periods. Wal-Mart Stores had a 1.5 percent gain, while Sam's Club's comp-store sales rose 2.6 percent. Total U.S. comparable-store sales for the six months ended July 31 were up 2.7 percent, with Wal-Mart Stores realizing a 2.6 percent increase and Sam's Club a 3.4 percent gain.

Net sales for the six months were $163.4 billion, an increase of 11.9 percent over the first six months of fiscal 2006. Income from continuing operations for the six months ended July 31 were $5.64 billion, or $1.35 a share, up from $5.36 billion, or $1.28 a share, in the prior-year period. Earnings per share from continuing operations for the six months ended July 31 were favorably impacted by two items totaling $145 million aftertax, or 3 cents a share, the company said.

As rising energy prices and higher interest rates squeeze core customers, Wal-Mart has sought to appeal to more affluent shoppers by providing luxury items. A store that opened in Plano, Tex., features expensive wines and gourmet foods. The company also has taken aggressive steps toward improving its fashion quotient, for example, by launching Metro 7 for style-conscious women.

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