Wal-Mart Says Profit Up, Warns on Energy Costs
Wal-Mart Stores Inc. said Tuesday that its fiscal first-quarter net income rose 6.3% as a result of strong sales and tight inventories. But the retailer warned of the potential for a bumpier road ahead as customers contend with higher gasoline and utility bills.
On a recorded call for investors, executives reported what Wal-Mart said was the best results “in many quarters.” Although customer traffic was down slightly at domestic Wal-Mart stores, the average receipt price rose, with shoppers taking advantage of newer, higher-priced merchandise.
But toward the end of the quarter ended April 30, Chief Financial Officer Tom Schoewe said, Wal-Mart experienced firsthand the effect of customers’ struggles with higher energy prices, with lower-margin groceries and other necessities claiming bigger shares of shopping carts.
The executives also said the company faced higher costs that probably would affect results for the rest of the year.
Those include increased expenses for energy, store remodeling and new employee benefit programs.
Still, many on Wall Street reacted positively to the company’s results. Shares of Wal-Mart shares rose 64 cents to $48.07.
“There are always macro-pressures; there are always gas costs which weigh heavily on their ‘have-not’ customer base,” said Bob Buchanan, an analyst with A.G. Edwards in St. Louis. “That’s the big negative, but I think that all they can do is put the right goods on the floor and present the goods properly, and I think they’re doing a good job of that. I’m fairly optimistic.”
Bentonville, Ark.-based Wal-Mart, with more than 6,500 stores worldwide, said net income for the quarter rose to $2.62 billion, or 63 cents a share, from $2.46 billion, or 58 cents, a year earlier. That increase came despite two one-time income gains last year that totaled $145 million after taxes.
Net sales rose 12.3% to $79.61 billion from $70.9 billion a year earlier. The company’s Wal-Mart stores, its largest division, posted a 10.2% sales gain to $52.5 billion.
Sales in stores open at least a year, a key measure of retail performance, rose 3.8% across the company, which included a 3.8% increase at Wal-Mart stores and a 4.3% increase at the company’s Sam’s Club warehouse stores.
The company’s tighter control of its massive stock of goods resulted in a 2% inventory reduction, which helped drive a gross margin gain of slightly more than half a percentage point, Schoewe said.
Operating profit for the Wal-Mart division grew 20.4%, the best increase in six years.
Still, Buchanan said, Wal-Mart’s size probably precludes maintaining its level of growth, which is why he rates the stock a “hold.” “Call it the pachyderm syndrome: It’s tougher to move quickly when your core business is the size of the elephant.”
