Wal-Mart 2Q profit rises 3.6%
NEW YORK, United States
WAL-MART Stores Inc reported a 3.6 per cent increase in second-quarter net income and raised its earnings guidance for the full year as it benefits from cost-cutting and robust global growth in China, Brazil and Mexico.
But a closely watched measure of revenue fell more than expected, dragged down by its US Walmart division, as its main customers have felt the biggest impact of the economy’s woes.
The discounter said yesterday it had net income of US$3.59 billion, or 97 cents per share, for the period ended July 31. That compares with US$3.47 billion, or 89 cents per share, a year ago.
Revenue rose almost three per cent to US$103.7 billion. Revenue at stores open at least a year fell 1.4 per cent, worse than the 0.26 per cent expected by Thomson Reuters. At Wal-Mart’s namesake stores, that measure fell 1.8 per cent while at Sam’s Clubs, the measure was up one per cent. The 1.4 per cent decline in revenue at stores open at least a year marked the fifth straight quarterly drop.
The measure is a key indicator of a retailer’s health.
Shares rose 39 cents to US$50.80 in premarket trading.
Analysts had expected earnings per share of 96 cents on revenue of US$105.3 billion.
“We continue to focus on our priorities of growth, leverage and return,” said Mike Duke, Wal-Mart Stores Inc’s president and CEO, said in a statement. “The slow economic recovery will continue to affect our customers, and we expect they will remain cautious about spending.”
As a testament to customers’ tepid spending, shoppers are buying back-to-school items closer to the school year’s start, officials said during a pre-recorded conference call.
Wal-Mart benefited during the recession as affluent shoppers traded down to cheaper stores. But it acknowledged in May that it’s losing some of those customers, who’ve started to trade back up. Meanwhile, stubbornly high unemployment and tight credit are still squeezing its main lower-income customers, who are having more trouble stretching their dollars to the next payday.
Wal-Mart’s strategy to turn around business at its weak US namesake stores remains in flux amid executive departures and reshuffling.
Bill Simon, former chief operating officer, took over Eduardo Castro-Wright’s job as president and CEO of the company’s US operations in June. Castro-Wright now leads the retailer’s e-commerce unit Global.com and its global sourcing division. He will remain vice-chairman of the company.
The company is also now seeking a replacement for chief merchant John Fleming, who left August 1 and played a big role in shaping what was on store shelves.
Duke said during the pre-recorded call that Wal-Mart’s top priority in its US business is to improve sales and traffic, and he expects assortments to be “more relevant” to customers in the coming months.
At Walmart stores, discretionary items like clothing and home goods, dragged down by weak business in grills, lawnmowers and patio furniture, declined, according to Simon. And the company’s steep price rollbacks in May and June didn’t generate the sales that it expected.
Wal-Mart has said its own strategies are partly to blame for its weak US business. Wal-Mart has acknowledged in recent months that its campaign to declutter its stores went too far, leading shoppers to flee to rivals such as Target Corp for favourite brands. It has been scrambling to restock some products over the past year.
The company is also focusing on basics such as socks and underwear after pushing trendy fashions and home furnishings, a strategy that didn’t fare well. That includes returning merchandise displayed on pallets in the aisles as promotions, which it calls “action alley” merchandise, in the past six weeks. As part of its campaign to declutter stores, the company had eliminated the pallets.
In a shift in strategy, Wal-Mart appears to have abandoned efforts to court more affluent shoppers, except for in electronics, David Schick, a retail analyst at Stifel Nicolaus, wrote in a recent note.
But Wal-Mart’s profits remain robust, helped by its international business and its focus to cut costs. Wal-Mart’s international business, which accounts for about 25 per cent of its revenue, rose almost 16 per cent to US$25.9 billion, while Walmart store revenue in the US rose a meager 0.6 per cent to US$64.6 billion. Sam’s Club’s revenue was up 3.4 per cent to US$12.46 billion.
Wal-Mart says it now expects it will earn between US$3.95 and US$4.05 per share for the year. That’s up from US$3.90 to US$4. Analysts surveyed by Thomson Reuters expect US$3.99 per share.
For the third quarter, Wal-Mart expects revenue at stores open at least a year to range from a decline of two per cent to an increase of one per cent. That compares wth a 0.5 per cent decline in the same period last year.