--First quarter earnings were relatively flat
--Same-store U.S. sales fall 1.4%
--Second quarter expected to be challenging
By Karen Talley and Saabira Chaudhuri
Wal-Mart Stores Inc.'s (WMT) fiscal first-quarter earnings rose 1.1% as the world's largest retailer reported slightly stronger revenue amid continued challenges for its lower-income customers.
Same-store sales at namesake U.S. stores fell for the first time in seven quarters amid what the company said was a delay in income tax refund checks, challenging weather conditions, less grocery inflation than expected and the payroll tax increase.
"We didn't have the first quarter performance we wanted as a company," Wal-Mart Chief Executive Mike Duke said on a conference call.
The second quarter may also be a bit rough. Chief Financial Officer Charles Holley said while the company will grow sales faster than expenses this year, the second quarter will be "challenging," given expense pressures in the international and corporate segments. "Expense leverage may not be delivered evenly across the quarters, but we believe that by executing our plans, we will continue to reduce expenses and improve productivity," he said.
U.S. same-store sales showed a 1.4% decline in the fiscal first quarter, when Wal-Mart in February forecast flat comparable-store sales. "When we provided flat comp guidance for the first quarter, we had expected among other things, to recover a reasonable portion of tax refunds, and had also assumed that customers would follow historical spending patterns with these funds," said Wal-Mart U.S. Chief Executive Bill Simon. "This did not materialize as we had anticipated."
Also, weather-sensitive departments including apparel were hurt by cool temperatures, Mr. Simon said.
Same-store sales excluding fuel at its Sam's Club warehouse clubs, meanwhile, edged up 0.2%. Wal-Mart had predicted same-store club sales excluding fuel between flat and up 2%.
Core customers of Wal-Mart generally have been grappling with less money, living paycheck to paycheck. In response, Wal-Mart has made modifications like going with smaller packaging and less expensive products. The retailer also recently announced plans to expand its ecommerce services this summer by placing lockers in stores for customers to pick up items they ordered from the company online.
Despite recent challenges to its core lower-income customers, strong expense-control efforts have helped the company's margins while increased austerity measures in Europe have benefited international sales. Mr. Duke nonetheless said he was "disappointed in our expense control in international."
Ahead of Wal-Mart's report, analysts at Barclays said they are "impressed with the company's disciplined expense management" and pointed to Wal-Mart's "defensive positioning, especially with the macro uncertainty," and its existing strategies being deployed the U.S. segment to improve same-store sales and traffic.
For the quarter, Wal-Mart reported a profit of $3.78 billion, or $1.14 a share, versus $3.74 billion, or $1.09 a share, a year earlier. The company's February forecast called for earnings of $1.11 to $1.16 a share. Analysts expected $1.15 a share.
Revenue rose 1% to $114.19 billion, missing the $116.29 billion expected by analysts polled by Thomson Reuters.
International sales rose 2.9% to $33 billion, or 5.4% on a constant currency basis.
Input costs rose 1%.
Looking ahead, the company forecast earnings of $1.22 to $1.27 a share for its current quarter, below the $1.29 per-share profit currently expected by analysts.
Earlier this week, Wal-Mart declined to sign on to a legally-binding pact meant to prevent disasters like the Bangladesh building collapse that killed more than 1,100 garment workers last month. Instead the retailer unveiled its own plan for improving safety at Bangladesh garment factories, saying it would hire an outside auditor and require factory owners to renovate when needed or risk being removed from its list of authorized factories.
Shares fell 2% to $78.25 in recent premarket trading. The stock has risen 35% in the past 12 months.
Write to Saabira Chaudhuri at [email protected]
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