Wal-Mart (WMT - Free Wal-Mart Stock Report), the world's largest retailer, has reported fiscal third-quarter earnings per share of $0.90, a 7% year-over-year rise (excluding a favorable tax benefit of $0.05 a share). Better operating leverage was achieved for the fourth consecutive quarter as the top line gained 2.6%, while expenses were up only 2.1%. Less markdown activity and greater international sourcing caused the positive swing. Sales from U.S. Wal-Mart stores were down just slightly, while International receipts were up 9.6% (7.9% on a constant-currency basis), and Sam's Club sales rose 2.7%. 

As expected, domestic same-store sales declined 1.3% on less traffic and a lower average transaction amount. After failed attempts to attract a wealthier clientele over the past year and a half, WMT is returning its focus to the customer group that accounts for 68% of its business, those with household incomes of under $70,000. The strategy has already had a positive effect on sales of socks, underwear, ladies' plus sizes, and activewear. Wal-Mart buyers are bringing back discontinued SKUs (mostly food items) and adding new ones. Too, promotional displays are returning to wide isles dubbed "action alley''.

Management expects to be the price leader throughout the holidays and established fourth-quarter U.S. comp guidance of down 1% to up 2%, which compares to a 2% decline last year. Notably, Wal-Mart surveyed its customers and found financial uncertainties are still weighing heavily on everyday Americans. Too, the paycheck cycle remains pronounced, as customers have been buying less toward the end of the month.

The strong showing from the International unit was primarily driven by solid comps from China, Japan, and the U.K., while new store growth in Mexico, Brazil, China, and Canada also helped. The company attributes the advance to its relevant localized merchandise.

Based on the upbeat fourth-quarter U.S. sales outlook, management raised the midpoint of its earnings guidance range by a nickel, to $4.03-$4.12 (excluding the tax benefit). We have confidence in Wal-Mart's successful return to a tried-and-true merchandising strategy. This, coupled with effective cost control, is reflected in our earnings-per-share estimate of $4.10.

About The Company: Wal-Mart Stores, Inc. is the world’s largest retailer, operating 2,747 supercenters (includes sizable grocery departments), 803 discount stores, 596 Sam’s Clubs, and 158 Neighborhood Markets in the U.S., plus 4,112 foreign stores, mainly in Latin America, with the balance in Asia, Canada, and the U.K. The company operated 952 million square feet of total store space at the end of its 2009 fiscal year. Most stores are owned and are within 400 miles of an expanding network of distribution centers. Groceries accounted for just over half of U.S. sales last year, while sales per square foot was about $440.

* This report includes late-breaking news not reflected in our full-page review of this company.

At the time of this article’s writing, the author did not have positions in any of the companies mentioned.