Costs squeeze Wal-Mart profit
Investment in boosting revenue hurt bottomline
NEW YORK — WalMart’s second-quarter earnings report was a mixed bag: Its investments to overhaul its stores are helping to perk up sales, but they’re causing more pain to the bottom line than expected.
The world’s largest retailer cut its annual earnings outlook Tuesday because its profits are being squeezed by pay raises for workers and efforts to make its stores cleaner and friendlier and speed up service. It also reported a 15.1 percent drop in secondquarter profit. Currency fluctuations are also dragging down results.
However, the retailer posted its fourth straight quarter of increases for an important sales measure, and its third straight increase in customer counts for its U.S. Wal-Mart stores.
Wal-Mart, based in Bentonville, Arkansas, is facing challenges on all fronts that have resulted in its shares falling 16 percent this year. Its lowincome shoppers are still struggling in an economy that is slowly recovering, though lower gas prices are providing some lift. The company is also facing increasing competition from online king Amazon. com and dollar stores, Employee pay raises are part of a $1 billion investment in its workforce that Wal-Mart is counting on to forge happier employees to improve the experience for customers. which are pulling in shoppers seeking low prices and convenience.
“The changes we need to make require investment, and we’re pleased with the steps we’ve taken,” Wal-Mart CEO Doug McMillon said, according to a transcript of a recorded message to investors.
Wal-Mart has been doing a number of things to improve its results. It’s trying to improve pricing and selection as well as beef up customer service. It raised the minimum wages for its hourly workers to $9 an hour in April. By February 2016, all hourly workers will make at least $10 an hour.
Those raises are part of a $1 billion investment in its workforce that also includes improved training. Wal-Mart is counting on happier employees to improve the experience for customers.
But the investments are battering the bottom line.
The company earned $3.48 billion, or $1.08 a share, in the quarter that ended July 31. That compares with $4.09 billion, or $1.26 a share, a year ago.
The results did not meet Wall Street expectations. The average estimate of 13 analysts surveyed by Zacks Investment Research was for earnings of $1.12 a share.
Wal-Mart posted revenue of $120.23 billion in the period, beating Street forecasts. Eleven analysts surveyed by Zacks expected $120.06 billion.
Revenue at stores open at least a year at its U.S. Wal-Mart stores rose 1.5 percent. In particular, the measure at its small format stores called Neighborhood Markets was up 7.3 percent. At Sam’s Clubs, that measure rose 1.3 percent.
Wal-Mart now expects full-year earnings to be $4.40 to $4.70 a share. That’s down from the original forecast of $4.70 to $5.05 a share.
Shares of Wal-Mart fell 3.4 percent, or $2.43, to $69.48 Tuesday.