Wal-Mart issues muted outlook despite higher quarterly earnings
Wal-Mart Stores Inc.’s first-quarter profit rose more than expected, but an important measure of U.S. sales fell again and the discount giant issued a muted outlook for the second quarter.
“A number of economic pressures, including gas prices and ongoing concerns about unemployment, continue to affect key segments of retail,” Chief Executive Mike Duke said in an earnings call. “And this is especially true for Wal-Mart’s core customer.”
For the three months ended April 30, profit at the world’s largest retailer totaled $3.32 billion, or 88 cents a share, a 10% increase from $3.02 billion, or 77 cents, in the year-earlier quarter.
But sales at U.S. Wal-Mart stores open at least a year — known as same-store sales and considered an important measure of a retailer’s health because it excludes the effect of store openings and closings — fell 1.4% because of soft customer traffic.
It marked the fourth quarter in a row of same-store sales declines for the Bentonville, Ark., company. Still, shares of Wal-Mart rose 98 cents, or 1.9%, to $53.71 Tuesday.
The company’s tepid same-store sales performance is in contrast to robust rebounds in recent months at retailers ranging from off-price chains to luxury department stores.
Analysts said the difference was due to Wal-Mart’s success during the recession. As the discount leader, many budget-minded shoppers flocked to the chain for necessities such as groceries and household items, and now some may be returning to higher-priced stores.
“A year ago, Wal-Mart had an inordinate benefit from consumers seeking out value,” said David Schick, an analyst at Stifel, Nicolaus & Co. “That really drove visits and business for them. The metric is to measure this year versus prior year, so guess what, if you had a strong year last year, that’s going to put pressure. But that’s starting to wane.”
Although Schick said the same-store decline wasn’t as bad as expected and noted that Wal-Mart effectively cut costs and grew its business internationally, other analysts said the chain will face some challenges going forward.
“Wal-Mart is working very hard to maintain customers that traded down to them during the recession,” said Bill Dreher, senior retail analyst at Deutsche Bank Securities. “They’re being very aggressive with their markdowns, but it’ll be very difficult to keep all the customers.”
Total first-quarter sales rose 6% to $99.1 billion.
Wal-Mart also said it was seeing sales pick up at newly remodeled stores, especially in categories including electronics, baby and home. The chain said it would remodel more than 550 Wal-Mart stores this year.
For the current quarter ending July 30, the discounter said it expected U.S. same-store sales, excluding fuel, to be down 2% to up 1% at Wal-Mart stores.
At Sam’s Club, the company estimated that second-quarter same-stores sales, also excluding fuel, would be flat, plus or minus one percentage point.
