Byline: Jennifer L. Brady

NEW YORK--Wal-Mart Stores reported second-quarter earnings rose 14 percent on a 23 percent sales jump, with the discount division shining in nonapparel areas and managing to offset weakness at Sam's Clubs. Net earnings for the period ended July 31 rose to $564.8 million, or 25 cents a share, from $495.9 million, or 22 cents, a year ago. They fell in line with estimates by Wall Street analysts, who continue to be bullish about Wal-Mart's future.
They look for Wal-Mart to earn $1.20 this year against $1.02 in fiscal 1994, and target earnings of about $1.40 for 1996.
Wal-Mart rose 1 1/2 to 24 1/4 Tuesday on the New York Stock Exchange, with 4.8 million shares trading.
"I do not see any reason why strength in same-store sales in the discount business won't continue," said Maureen M. McGrath, an analyst at Smith Barney Shearson. The discount stores were "clearly quite strong" in the quarter, McGrath added.
David Glass, president and chief executive officer, said in a statement, "We're pleased with our success in the second quarter, particularly in the discount store and supercenter divisions." He cited strength in electronics, food, basics and seasonal categories in a conference call to analysts, and said hard goods overall were pacing the gains. Except for women's foundations, he mentioned no apparel categories as highlights. "Apparel is generally a soft spot for Wal-Mart. It was probably an average performer at best," said Janet J. Mangano, an analyst at Burnham Securities.
Total sales were $19.9 billion against $16.2 billion, and same-store sales grew 6.4 percent. Sales at Wal-Mart's discount stores, which made up 71 percent of total volume, advanced 22 percent to $14.2 billion, with same-store sales surging 9.7 percent.
Sam's Club, however, suffered a 3.6 percent drop in same-store sales. Total sales gained 32.4 percent to $4.8 billion.
McGrath said Wal-Mart is held back by declining same-store sales at Sam's Clubs. She noted that Pace, which Wal-Mart acquired from Kmart last year, have yet to contribute to earnings. She expects Sam's same-store sales to improve in the second half due to easy comparisons, but she does not expect to see positive same-store trends this year.
Edward F. Johnson, of Johnson Redbook Service, said strong earnings at the core discount operation and supercenters were partly offset by costs to absorb Woolco stores in Canada, acquired from Woolworth Corp. this year, as well as Pace.
Gross margins slipped to 19.7 percent of sales in the quarter from 20.2 percent a year earlier. Analysts attributed the decline to a higher percentage of lower merchandise items at Sam's and pharmacy departments. Selling, general and administrative expenses increased to 15.9 percent of sales from 15.5 percent due to increases in insurance and payroll, analysts said.
In the half, net earnings gained 12.3 percent to $1.1 billion, or 46 cents, from $946.5 million, or 41 cents. Sales increased 24.8 percent to $37.6 billion from $30.2 billion.
In the latest quarter, Glass noted that the firm converted 35 Woolco Canada stores to the Wal-Mart format. In its international division, Wal-Mart has expanded into Brazil through a joint venture, and Argentina.
He said Wal-Mart's two full-service distribution centers in Bluff, Calif., and Marcy, N.Y., began receiving in the latest quarter and the company opened its first Wal-Mart store in Hawaii on Aug. 2.
Wal-Mart operates 1,969 Wal-Mart discount stores, 87 supercenters, 434 Sam's Clubs and 122 Canadian Wal-Mart stores.
--Fairchild News Service

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