Wal-Mart fore­casts tepid sales growth; stock slides

The Pak Banker - - COMPANIES/BOSS -

Wal-Mart Stores Inc on Thurs­day re­ported a lower quar­terly profit and gave a lack­lus­ter sales out­look as de­clin­ing prices for gro­cery prod­ucts and slug­gish ap­parel de­mand took a toll, and its shares fell more than 3 per­cent.

Earn­ings at the world's largest re­tailer have been un­der pres­sure re­cently due to costs to raise en­try-level wages, spruce up its stores and build out its e-com­merce in­fra­struc­ture as it grap­ples with faster-grow­ing on­line ri­val Ama­zon.com Inc.

Re­sults for the fourth quar­ter ended on Jan. 31 show Wal­Mart is strug­gling to make those in­vest­ments bring sig­nif­i­cant top-line growth, but it also suf­fers from a stronger dol­lar that has been slic­ing into the value of rev­enue gen­er­ated over­seas.

The com­pany said sales at U.S. stores open at least a year rose 0.6 per­cent from a year ear­lier. This was their sixth straight quar­terly gain, but it missed mar­ket ex­pec­ta­tions for a rise of 1 per­cent. For the cur­rent quar­ter, Wal-Mart said it ex­pected a U.S. same-store sales in­crease of 0.5 per­cent, slower than the year-ear­lier rise of 1.1 per­cent.

The re­tailer also said it ex­pected net sales to be flat in its new fis­cal year, down from a pre­vi­ous fore­cast for 3 per­cent to 4 per­cent growth. The tepid sales fore­cast is trou­bling be­cause it comes de­spite the in­vest­ments in wages and ren­o­va­tions, Ed­ward Jones an­a­lyst Brian Yar­brough said. He said some ri­val su­per­mar­ket chains have been out­per­form­ing Wal-Mart in the gro­cery mar­ket.

"It's the same old story," Yar­brough said. "They con­tinue to strug­gle to drive traf­fic and sales." Wal-Mart said fourth-quar­ter net in­come fell 7.9 per­cent to $4.57 bil­lion, or $1.43 a di­luted share.Con­sol­i­dated rev­enue fell 1.4 per­cent to $129.7 bil­lion, but Wal-Mart said it would have in­creased 2.2 per­cent if not for the dol­lar's rise.

Greg Foran, head of Wal-Mart's U.S. busi­ness, said sales suf­fered from slug­gish de­mand for win­ter clothes due to un­usu­ally warm weather that hurt most of the na­tion's re­tail­ers. The sales de­cline also re­flected an in­dus­try­wide drop in prices for meat, dairy and some other prod­ucts, he said, and a de­lay in re­fund checks from the U.S. In­ter­nal Rev­enue Ser­vice curbed cus­tomers' spend­ing.

Foran said he was con­fi­dent that var­i­ous in­vest­ments, such as to im­prove its fresh food sec­tion and ex­pand gro­cery pickup, would yield re­sults. He pointed to the $2.7 bil­lion in­vest­ment in higher em­ployee pay, which in­cludes a bump in the com­pany's min­i­mum wage to $10 an hour this month, as crit­i­cal to ac­cel­er­at­ing growth. "The la­bor in­vest­ments that we are pro­vid­ing are ab­so­lutely cru­cial to im­prov­ing the store ex­pe­ri­ence and ser­vice to our cus­tomers, and I'm see­ing that as I get around," Foran said on a call with re­porters.

Op­er­at­ing in­come in Wal-Mart's in­ter­na­tional busi­ness fell 19 per­cent to $1.7 bil­lion, re­flect­ing the firmer dol­lar, 115 store clo­sures in Latin Amer­ica, and tough mar­ket con­di­tions in China, the United King­dom and Brazil. The com­pany said its Mex­i­can and Cana­dian busi­nesses per­formed well dur­ing the quar­ter.

Fourth-quar­ter e-com­merce sales rose 8 per­cent, ex­clud­ing cur­rency moves, con­tin­u­ing a de­cel­er­a­tion from growth of 17 per­cent in the first quar­ter, 16 per­cent in the se­cond and 10 per­cent in the third. Weak­ness in Brazil and other in­ter­na­tional mar­kets partly off­set a solid on­line per­for­mance in the United States. Shares of Wal-Mart were down 3.4 per­cent at $63.89 in af­ter­noon trad­ing. At Wed­nes­day's close, the stock had been up 8 per­cent this year, and Ed­ward Jones' Yar­brough said Thurs­day's fall prob­a­bly stemmed in part from in­vestors' cash­ing in on re­cent gains.

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