Wal-Mart profit rises 5.7% despite weak U.S. sales
Despite a rise in its second-quarter profit, Wal-Mart Stores Inc. continued to struggle with an important measure of U.S. sales as its core low-income customers worried about job security, rising costs and their finances.
For the three months ended July 31, the nation’s largest retailer reported profit of $3.8 billion, or $1.09 a share, a penny better than expected and up 5.7% from $3.6 billion, or 97 cents, a year earlier.
Although the discount giant performed well internationally, its U.S. business remained weak as shoppers spent frugally, especially on discretionary items, amid a sluggish economy.
To stretch their budgets, shoppers traded down to lower-priced items, turned to private-label brands and bought smaller package sizes, Wal-Mart executives said during an earnings call Tuesday.
Sales fell 0.9% at U.S. Wal-Mart stores open at least a year, an important measure of a retailer’s health because it excludes the effect of store openings and closings. It was the ninth consecutive quarter of U.S. same-store sales declines for the chain and worse than the 0.6% drop that analysts had been expecting.
Bill Simon, Wal-Mart U.S. chief executive, said the company remained concerned about economic pressure on shopping behavior.
“Customers are still consolidating trips due to higher year-over-year gas prices. The swings in sales due to paycheck cycles remain pronounced,” he said. “We also have seen an increase in the number of customers relying on government assistance for food and necessities for their family.”
Wal-Mart’s weak U.S. sales performance at its discount stores was offset by a 5% year-over-year same-store sales rise at Sam’s Club warehouse locations. When combined, U.S. same-store sales for the company were flat. Companywide, total sales rose 5.5% to $108.6 billion in the second quarter.
Other economic news released Tuesday proved mixed, giving investors little confidence about the direction of the nation’s economy.
Shoppers pulled back for the third consecutive week, sending retail sales down 1.5% in the week ended Aug. 13, according to the International Council of Shopping Centers. Flagging retail sales figures are raising doubts about consumer confidence in the wake of the financial turmoil last week.
July housing starts were slow too, coming in at a seasonally adjusted rate of 604,000, the Commerce Department said. That’s 1.5% lower than June, but 9.8% higher than July 2010. Permits for residential construction declined 3.2%.
The one bright spot came in industrial production numbers, which were better than expected. Industrial production grew 0.9% in July, according to the Federal Reserve. This was led by manufacturing of motor vehicles and parts, which started up production again after a lapse caused by the Japan earthquake and tsunami.
Markets were mixed on the economic news, with the Dow Jones industrial average slipping 76 points, or 0.67%.
In recent months, Wal-Mart has been adopting a series of initiatives to try to turn around its domestic sales numbers. Among them: opening smaller locations to increase competition with dollar stores, offering more grocery options and shaking up its online management team as it looks to boost Internet sales.
In April the Bentonville, Ark., company announced that it was bringing back thousands of items to its stores this year, lowering prices and launching an advertising campaign to promote its price-match policy. The retailer said it would broaden its offerings by 8,500 items, or 11%, for an average store, a reversal of a 2009 strategy that had the company reduce its product assortment.
Wal-Mart renewed that price strategy Tuesday, with Chief Executive Mike Duke saying the company was “laser focused” on passing along savings to its customers.
“It really lays the groundwork for more intense pricing competition in the retail landscape,” said John Tomlinson, a retail analyst at ITG Investment Research. “And if anyone’s going to win that war, Wal-Mart’s got the scale and muscle.”
Wal-Mart raised its full-year earnings outlook to $4.41 to $4.51 a share from its previous range of $4.35 to $4.50. The company said its goal was to have positive same-store sales at its U.S. discount stores by the end of the year.
Its shares rose $1.94, or 3.9%, to $51.92 on Tuesday.
