Wal-Mart Stores, Inc. (NYSE:WMT) Stores announced results below expectations  as sales increased but not as much as many had expected.

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The retailer revealed that sales in US this month so far, is better than expected owing to the company’s increased focus on low prices. Sales for the quarter improved marginally by 3.4 percent to $113.20 billion, just below consensus estimates of $114.96 billion. Excluding currency impact, net sales for the quarter stood at $114.9 billion. Wal-mart reported earnings of $3.64 billion, or $1.08 per share in the third quarter ended October 31, up from $3.34 billion, or 97 cents per share, a year earlier. Analysts, on average, had forecast the retailer to earn $1.07 a share. Wal-Mart’s membership and other income increased 2.1 percent to $725 million.

“We’re very pleased with our financial performance for the third quarter and the dedication and hard work of our associates serving Walmart customers and communities around the world,” said Mike Duke, Wal-Mart Stores, Inc. (NYSE:WMT) president and chief executive officer. “Earnings per share were $1.08, which represents an 11.3 percent increase over the third quarter last year”.

The world’s largest retailer enjoyed an effective tax rate of 31.3 percent this quarter, which was largely offset by $105 million in pre-tax charges. Of these pre-tax charges, $69 million relate to employment claims in Brazil and $36 million for damages from Sandy. Wal-Mart Stores, Inc. (NYSE:WMT)’s International sales increased by 2.4 percent to $33.2 billion.

For the nine months ended Oct. 31, 2012, Wal-Mart announced free cash flow of $7.0 billion, compared to $3.4 billion the previous year. The company’s Return on investment (ROI), for the trailing 12 months, declined marginally to 18.0 percent, compared to 18.2  percent for the same prior year period. The retailer’s income from operations was up 8.7 percent to $3.6 billion.

“Despite current economic conditions, we continue to produce solid operating results with strong cash flow from operations,” said Charles Holley, executive vice president and chief financial officer. “The strength of our free cash flow allows us to provide good returns to our shareholders through dividends and share repurchases”.

For the full year, the company revised its earnings guidance, reducing it marginally by five cents to $4.88 to $4.93. Wal-Mart shares fell 4.19 percent to $68.30 in today’s trading session. This is a fairly large drop for a stock which is normally not very volatile. 

“For the full year, we are tightening and reaffirming the top end of our earnings per share guidance to a range of $4.88 to $4.93. This compares to our previous guidance of $4.83 to $4.93,” Holley said. “Last year’s full-year EPS was $4.54.”

BAML analysts  believe that Wal-Mart Stores, Inc. (NYSE:WMT) is positioned well for a strong fall/holiday 2012, for six reasons:

1) good sales momentum coming out of back-to-school

2) broadened and more locally relevant assortments vs. LY, supported by store specific modulars through proactive store manager involvement and use of Nielson data.

3) plans to be more “in-stock” and “nimble” for key selling events this year (particularly for Black Friday).

4) the success of WMT’s price leadership message (with the ongoing implementation of WMT’s EDLP strategy and “market basket challenge” TV ad campaign, which is driving an over 100bp lift to sales & traffic in 25 markets).

5) an expanded holiday layaway program (began in Sept) and extended Black Friday hours (store events start at 8PM on Thanksgiving Day vs. 10PM last year w/ deals in Toys, Gaming and Apparel, and additional electronics deals beginning at 10PM vs. midnight LY), in addition to new online exclusive specials.

6) compelling Black-Friday one-hour guaranteed deals, including an Apple iPad 16GB w/ WiFi for $399 plus a $75 gift card.