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Walmart profit, dividend calm worries

Higher taxes hurting customers, yet retailer gaining market share

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NEW YORK -- Wal-Mart Stores Inc. rose Thursday after fourth-quarter profit topped analysts' estimates and the company raised its dividend, overcoming concerns that tax increases would hurt earnings this year.

Shares in the world's largest retailer rose 1.5 per cent to $70.26 at the close in New York. The Bentonville, Ark.-based company's shares have gained three per cent this year compared with a 5.4 per cent increase for the Standard & Poor's 500 Index.

Chief executive officer Mike Duke is working to keep prices low amid delayed refunds and a two-percentage-point increase in Social Security taxes. While the higher tax bite hurt Walmart's customers, the retailer is gaining market share, according to the minutes of an officers' meeting obtained by Bloomberg. The company Thursday raised its annual dividend 18 per cent to $1.88 a share to return cash to investors.

The dividend increase "signals the strong-cash-flow nature of the business, management's confidence in the business and their willingness to enhance shareholder value," Brian Yarbrough, an analyst at Edward Jones & Co. in St. Louis, said Thursday in an email. Yarbrough had forecast a 12 per cent dividend increase.

Fourth-quarter net income increased to $5.61 billion, or $1.67 a share, from $5.16 billion, or $1.50, a year earlier, the company said in a statement. The average of 22 analysts' estimates compiled by Bloomberg was $1.57.

Walmart's free cash flow, which it defines as net cash from operating activities minus payments for property and equipment, rose 19 per cent to $12.7 billion last year.

The profit results and dividend increase helped assuage concern over first-quarter and full-year forecasts that trailed some analysts' estimates.

Earnings per share in the current quarter will be $1.11 to $1.16, Walmart said Thursday. Analysts projected $1.19, the average of 18 estimates compiled by Bloomberg. Profit in the year ending January 2014 will be $5.20 to $5.40 a share, Walmart said. The average of 25 analysts' estimates compiled by Bloomberg was $5.39 a share.

The company, which is being investigated for potential violations of the Foreign Corrupt Practices Act, said costs associated with the probes and compliance matters would be as much as $45 million in the current quarter.

The shares fell as much as 1.1 per cent in early trading before rebounding. The stock closed near its closing price of $70.82 on Feb. 14, the day before Bloomberg News reported on executives' emails showing the delayed refunds and tax increases had resulted in a dismal start to February sales.

Comparable-store sales in the 13 weeks ending April 26 are projected to be little changed because of slower sales in the first few weeks of the first quarter, Bill Simon, Walmart U.S. president and CEO, said in Thursday's statement.

"February sales started slower than planned, due in large part to the delay in income tax refunds," Simon said. "We continue to monitor economic conditions that can impact our sales, such as rising fuel prices, changes in inflation and the payroll tax increase."

About $19.7 billion more in tax refunds had been delivered to consumers by this time last year, according to an analysis prepared by Walmart's global customer insights and analytics division that was attached to a Walmart executive's email Feb. 12.

The tax increase that took effect this year may cause seven out of 10 Americans to curtail spending, especially on big-ticket items such as cars, according to a survey the National Retail Federation released Thursday.

About 73 per cent of consumers said their spending plans are taking a hit, the Washington-based trade group said, citing a survey of 5,185 people conducted by BIGinsight from Feb. 5 to Feb. 13. More than a third said they'll reduce how much they dine out and 25 per cent said they plan to cut back on small luxuries such as manicures and trips to coffee shops.

"The increase in the payroll tax will force these consumers to spend less. It also may prompt other shoppers to migrate to Walmart because of its lower prices," David Strasser, an analyst at Janney Montgomery Scott in New York, said in a Feb. 11 note.

-- Bloomberg News

Republished from the Winnipeg Free Press print edition February 22, 2013 B7

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