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Wal-Mart cuts profit outlook

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The results show the continued challenges facing Wal-Mart's new management team

Wal-Mart Stores Inc. cut its annual profit outlook Thursday amid sluggish sales, higher-than-expected healthcare costs and the need to invest more in its e-commerce operations.

The world's largest retailer eked out a 0.6% increase in second-quarter profit, dragged down by a weak U.S. business. A key revenue measure was flat in its U.S. discount stores, though it reversed five straight quarters of declines. Meanwhile, the number of customers has now fallen seven quarters in a row.

The results show the continued challenges facing Wal-Mart's new management team. Doug McMillon, who was head of the company's international division, took over the company as chief executive Feb. 1.

Last month, he named Greg Foran, who was the CEO of Wal-Mart's China business, as the head of Wal-Mart's U.S. discount business, which accounts for 60% of the company's revenue. The Bentonville, Ark., company is facing challenges from a slowly recovering economy and fierce competition from the likes of online king Amazon.com, dollar stores and grocers. It's also dealing with a shift among shoppers seeking the convenience of small stores or buying on their mobile devices and PCs.

Wal-Mart also said Thursday that the Nov. 1, 2013, expiration of a temporary boost in food stamps is still hurting its shoppers' ability to spend.

The company reported net income of $4.09 billion, or $1.26 a share, compared with $4.07 billion, or $1.24, a year earlier.

Earnings, adjusted to account for discontinued operations, were $1.21 a share, matching analyst estimates.

The company said revenue rose about 3% to $119.34 billion. Analysts expected $119.06 billion, according to Zacks.

In the U.S., revenue at stores open at least a year was unchanged from a year ago, including flat sales at Sam's Clubs.

Sam's Club, which is facing fierce competition from rival Costco, has been trying to rev up its business with trendier home and fashion assortments and offering more incentives in its membership program.

Wal-Mart said it now expects earnings for the year to be in the range of $4.90 to $5.15 a share. That's down from its previous guidance of $5.10 to $5.45 a share.

Wal-Mart said that the reduction in full-year profit projections assumes a continued challenging global economy. But Wal-Mart also said that far more U.S. employees and their families are enrolling in its healthcare plan than it expected.

As a result, it now expects healthcare costs to increase about $500 million for the fiscal year, which is about $170 million higher than the original estimate.

Wal-Mart shares closed up 36 cents, or 0.5%, to $74.39.

Copyright © 2014, Los Angeles Times
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