NEW YORK — The contrary economic environment was able to slow down the Bentonville behemoth only slightly in the fourth quarter.In a rare brush with merchandising mortality, Wal-Mart Stores Inc.’s sales and profit growth for the fourth quarter, while still double-digit, fell short of its annual expansion rates.For the year, the Bentonville, Ark.-based discount titan grew profits faster than sales, with strength in the most-recent quarter coming from the international division and expense control. Looking ahead, president and chief executive Lee Scott said he expects the firm’s internal global sourcing efforts to be integral to higher profits over the next five years.Earnings for the fourth quarter progressed 15.5 percent to $2.53 billion, or 57 cents a share. This compared with income of $2.19 billion, or 49 cents, a year ago.With the stronger-than-expected finish in its international unit, Wal-Mart’s earnings came in a penny ahead of its recent projections and Wall Street’s estimate of 56 cents. Investors traded down shares of the firm 7 cents, or 0.1 percent, to close at $49.08 on the Big Board even as the Dow Jones Industrial Average, of which Wal-Mart is a component, headed the opposite direction, picking up 132.35 points, or 1.7 percent, to end the day at 8,041.15.The firm also impressed analysts with its control of operating, selling, general and administrative expenses, which rose just 2 basis points as a percentage of sales, a feat unexpected in an environment where sales were hard to come by and fixed expenses were high.Sales for the period ended Jan. 31 ascended 10.6 percent to $71.59 billion from $64.73 billion a year ago. Comparable-store sales increased 2.7 percent.Wal-Mart, already the largest company in the world, continued its dramatic growth in 2002, with its revenues approaching $250 billion. By way of comparison, Wal-Mart added $26.85 billion in sales last year, nearly the equivalent of the combined total sales of May Department Stores Co. and Federated Department Stores Inc., which tallied $28.93 billion for the 12 months.On a recorded conference call, Scott categorized the year as "exciting, challenging and, in some cases, troubling."A strong performance in the Wal-Mart division provided some of the excitement, he said, while challenges came in the form of weakening consumer spending and higher petroleum prices, which rose 81 percent over the 12 months. Troubling to the ceo were fears surrounding growing geopolitical risks and the loss of investor confidence because of certain high-profile ethical breaches among some U.S. corporations."One of the great successes for Wal-Mart this year was our global sourcing conversion," said Scott. "This marked our first full year of internal global sourcing efforts." Through these efforts, the discounter has had greater control of its supply chain as well as an increased ability to leverage its buying power and merchandising with its stores around the world. Sourcing globally will continue to grow in its importance to the bottom line, said Scott. "Where inventory improvement drove our above-plan earnings in the late 1990s, I believe that the benefits of global sourcing will be one of the most important factors in earnings growth in the next five years."Despite concerted moves to upgrade its merchandise, Scott countered claims that the firm is pursuing a different customer. "The people who purchase this merchandise are almost always existing customers who were just buying these items at other retailers previously. We do not have an aversion to higher price points," continued Scott. "We simply react to what the customer wants. At the same time, we continue to focus on opening price points or the lowest price in a merchandising category." In apparel, the Wal-Mart division has beefed up its offering with the British-born George line. Jay Fitzsimmons, senior vice president of finance and treasurer, noted on the call, "The George clothing line continues to trade very strongly in the U.K. with comp-store sales growth in the mid-20s, including a very successful Christmas. Over the last two years, the percentage of [U.K. division] Asda shoppers regularly buying George clothing has doubled to over 30 percent."Whether the firm will achieve the same success in the U.S. remains to be seen. Wal-Mart, though, is generally believed to have the wherewithal and focus to fine-tune its strategy almost indefinitely. Bear Stearns analyst Christine K. Augustine noted the George label has been "phenomenally successful for Wal-Mart in the U.K. Keep your eye on George in the U.S." Wal-Mart’s had "more trend-right items" in apparel, she said, which "has to be a driver of better apparel sales at the company. This is the tip of the iceberg."The assortment will continue to improve, she noted, with the entry of Levi Strauss & Co.’s Signature brand in about 3,000 doors this back-to-school season. "At the same time, Wal-Mart will be pushing and improving its apparel cycle time," she said. "It’s going to start showing up in the numbers. They will get the cycle down and, whatever risk they take on in fashion, they will mitigate because they will be in and out of product faster."Over the last year or so, Wal-Mart has built a 100-plus member product development team focused on keeping assortment on trend. J.P. Morgan Chase & Co. analyst Shari Schwartzman Eberts noted, "Wal-Mart continues to outperform all retail formats in terms of its share gains, so the deceleration we’ve seen in the sales line is mostly macro-related. The amazing thing about Wal-Mart that people forget sometimes is that they’re all about creative destruction." That is, about two-thirds of the firm’s new stores are the relocation of existing stores.As for Wal-Mart’s global sourcing initiatives, Eberts noted, "They’ve been working on global sourcing for several years and are starting to see some benefits come through the gross margin side. As you look out at the next several years and try to see where Wal-Mart’s going to get margin expansion, global sourcing is a big part of that."Operating profits at the namesake Wal-Mart division advanced 15.8 percent to $3.59 billion for the quarter. Sales were up 11.2 percent to $45.49 billion, on a 3.3 percent comp uptick.The international segment’s operating profits provided the stand-out performance with a 37.6 percent jump to $757 million for the three months. Sales were ahead 12.7 percent to $12.19 billion. The faltering Sam’s Club division saw operating income dip 0.7 percent to $295 million for the quarter. Sales rose 5.2 percent to $8.73 billion, with comps sliding 0.4 percent.Total inventories at the end of the quarter were up 10.1 percent. The company stressed, though, that several factors, including lower than expected holiday sales, the West Coast dock lockout and an acquisition, played into this. Comparable U.S. inventories were up a percentage in the high-single digit range.For the year, profits shot up 20.5 percent to $8.04 billion, or $1.81 a share, from $6.67 billion, or $1.49, in 2001. Sales for the 12 months improved 12.2 percent to $246.53 billion from $219.67 billion a year earlier.This year, Wal-Mart projected net profits of $2 to $2.05 a share. The first quarter should produce earnings of 40 to 42 cents a share.
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