Wal-Mart Stores Inc. reported higher quarterly sales in its U.S. stores but lower profits, as the retailer's recent changes helped it attract some of the shoppers who have skipped other chains in recent months.
Sales in existing U.S. stores rose 1.5% in the third quarter, the fifth straight quarter of growth after a long period of declines. The number of people shopping also increased for the fourth straight quarter, up 1.7%, though they spent slightly less per trip.
Despite the sales gains, the company's profit fell 11% in the latest quarter and Wal-Mart has warned that profits will continue to decline as it absorbs higher spending. The company lowered its long-term profit target in August and again in October. Shares, which have fallen about 31% this year, rose 3% in midday trading.
Heading into the important holiday shopping season, retailers and government data have presented a less-than-rosy picture of American's thirst for clothes, gifts and household goods. Last week, weak quarterly sales figures from department store chains including Macy's Inc. and Nordstrom Inc. sent retail stocks tumbling.
Grocery sales account for more than half of Wal-Mart's U.S. business, which insulates it from some of the weak demand hurting chains that rely more heavily on apparel and accessories. "We found the U.S. consumer…they went to Walmart," in the third quarter, Oliver Chen, an analyst at Cowen, titled a report on Wal-Mart's results.
The latest results from Wal-Mart and other chains counter the view that Americans are simply not shopping. Rather, there are pockets of strength and weakness. On Tuesday, Home Depot Inc. reported another strong quarter, with sales in existing stores rising 5.1% as homeowners spent on improvement projects. However, Dick's Sporting Goods Inc. posted weak sales and warned same-store sales could fall in the fourth quarter. Shares of the sports-specialty chain fell 11% in recent trading.
"There's no denying this is a difficult environment for many retailers, including us," said Edward Stack, the chief executive of Dick's Sporting Goods. The company's inventory rose 13.1% from a year ago, while sales rose 7.6% in the quarter.
While Wal-Mart's short-term sales are improving, the company still faces the long-term problem of investing heavily to grow its business. Last month the retailer spooked investors by predicting that profit will fall as much as 12% next year as it increases wages for store employees in the midst of a tight labor market and builds e-commerce capabilities. This fiscal year and next, Wal-Mart plans to spend $ 2.7 billion on wage increases and another $ 2 billion to improve its e-commerce operations.
"What we have been working on this year is basic blocking and tackling;" making sure shelves are stocked, aisles are wider to allow carts to pass and inventory isn't bloated, Wal-Mart U.S. CEO Greg Foran said on a call with reporters to discuss earnings.
Now all eyes turn to the important holiday shopping season.
"My question is how much of this quarter is fourth quarter?" says Charlie O'Shea, vice president at Moody's about Wal-Mart's strong third-quarter U.S. store sales. Wal-Mart started selling a key holiday gift category—"Star Wars" merchandise—in September, which could have moved some fourth-quarter sales forward, says Mr. O'Shea.
"I'm pretty confident in the assortment and prices we've got, and I think we are well-positioned for the holiday season," said Mr. Foran on the call.
Other retailers say they fear too much merchandise ending up on clearance racks this holiday season. Macy's and Nordstrom's said warm weather has kept shoppers from buying cold-weather products like sweaters and jackets, creating a need to discount heading into the holiday shopping season.
"I think we are OK at this point in time," in terms of inventory levels heading into the holidays, said Mr. Foran last week at a holiday event at a Wal-Mart store in New Jersey. "We'd like the temperature to cool down a bit in parts of the country, but we aren't at a point where we are going we have to do anything." In the third quarter, inventory levels in existing U.S. Wal-Mart stores fell 1.9%.
Overall, for the third quarter, Wal-Mart posted a profit of $ 3.3 billion, or $ 1.03 a share, down from $ 3.71 billion, or $ 1.15 a share. The latest quarter included a one-time gain of $ 100 million, or 4 cents a share, from a change in how Wal-Mart accounts for store leases.
Global revenue slipped 1.3% to $ 117.41 billion. Wal-Mart's weak international performance in areas including Brazil and the U.K., along with the strong dollar, ate into results. At Asda, Wal-Mart's U.K. arm, sales at existing stores fell 4.5%.
Still, Wal-Mart executives predicted full-year earnings of $ 4.50 to $ 4.65 a share, compared with its prior downbeat forecast of $ 4.40 to $ 4.70 a share given in August. At the start of the year, in February, Wal-Mart had predicted earnings would be between $ 4.70 and $ 5.05 a share.
Write to Sarah Nassauer at sarah.nassauer@wsj.com and Lisa Beilfuss at lisa.beilfuss@wsj.com
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