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Wal-Mart Deepens Gloom Around Retailers With Weak Sales Report

08/15/2013 | 09:53am US/Eastern
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   By Shelly Banjo 
 

Wal-Mart Stores Inc. deepened the gloom around retailers' results on Thursday, reporting weak sales that it said will continue through the year, as its low-income customer base remains cautious.

The retailing giant said its fiscal second-quarter earnings rose 1.3%, but sales grew slower than expected. The retailer said consumers in both mature and emerging markets curbed spending and traded down to lower-priced products. Wal-Mart cut its forecast for profits and sales for the year.

The gloomy read on U.S. consumers comes a day after department store chain Macy's posted disappointing results and lower store traffic, heightening concerns that the key back to school shopping season is off to a weak start. Also on Thursday, rival Kohl's Corp. added to those concerns when it said its fiscal second-quarter profit fell 3.5% and lowered its earning forecast for the full year.

Wal-Mart, the world's largest retailer, said profit ticked up to $4.07 billion in the quarter ended July 31 from $4.02 billion a year earlier, as revenue rose 2.3% to $116.95 billion.

Sales at its U.S. stores open at least a year fell 0.3%, after Wal-Mart had previously said they would be no worse than flat. It was the fifth consecutive decline for the key retail metric. Wal-Mart expects flat comparable store sales or the U.S. in the current quarter as well.

Chief Financial Officer Charles Holley Jr. said an assumption of cautious consumer spending will color the company's expectations for the rest of the year. Shoppers are reluctant to spend on discretionary items, he said, and Wal-Mart will bring back its layaway program for the holidays.

Wal-Mart lowered its full-year earnings estimate by 10 cents a share to a range of $5.10 to $5.30 a share. It now expects growth in net sales of just 2% to 3%, about half its prior forecast of 5% to 6% growth. "The customer remains challenged," Wal-Mart U.S. President Bill Simon said.

Wal-Mart has missed Wall Street estimates in recent quarters as its core lower-income customers in the U.S. contend with high gasoline prices and persistently high unemployment levels. This year's comparable-store sales have also been pressured by a delay in income-tax-refund checks, severe weather conditions and a higher payroll tax.

Executives warned an inventory increase of 6.8%, primarily driven by softer sales, could cause Wal-Mart to pull back on orders from suppliers to make room for an expanded array of holiday goods.

Strong expense-control efforts helped Wal-Mart's margins in the past fiscal quarter, but the retailer is still grappling with costs related to foreign bribery charges and revamping its e-commerce operations. Expenses related to foreign bribery allegations and an overhaul of its compliance programs came in at $82 million this quarter, $12 million to $17 million higher that executives expected.

So far this year, the Bentonville, Ark., company has incurred $155 million in expenses related to the compliance overhaul and bribery investigations by the U.S. Department of Justice and the Securities and Exchange Commission, as well as a number of shareholder lawsuits. The retailer hasn't disclosed whether it has identified any violations, but says it is cooperating with all investigations.

In addition, earnings per share were reduced by one cent due to an undisclosed charge for a "certain non-income tax matter," in operating expenses within Wal-Mart International.

Operating margin edged down to 5.8% from 5.9%.

"There are areas of our business where we can do a better job, and we will," Chief Executive Mike Duke said.

--Melodie Warner contributed to this article.

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