UPDATE: Wal-Mart 1Q Profit Up 3% On International Sales Strength
May 17 2011 - 9:00AM
Dow Jones News
Wal-Mart Stores Inc.'s (WMT) fiscal first-quarter profit rose 3%
on international strength while U.S. operations continued to
struggle.
The world's biggest retailer also saw its bottom line impacted
by higher product costs and interest expenses.
Comparable store sales at Wal-Mart's U.S. stores, by far the
company's biggest unit, fell for the eighth straight quarter, with
the decline attributable to a combination of Wal-Mart still working
on its merchandising strategy and the company seeing a reluctance
by consumers to shop. Rising gasoline prices and continued high
unemployment are serving as a damper for Wal-Mart's lower-income
customers, with the retailer saying fewer of them came in during
the first quarter.
"Despite improvements in some areas of the economy, core
Wal-Mart U.S. customers are still stretched," Chief Executive Mike
Duke said on a conference call.
As a result, same-store sales at U.S. stores dropped by 1.1% in
the first quarter. Wal-Mart gave guidance for a 1% rise to a 1%
decline for the current quarter, reflecting continued uncertainty
about customers. The company is also trying to gain traction with
efforts that include bringing more merchandise back into stores and
reemphasizing an "every day low price" strategy.
Bill Simon, head of Wal-Mart's U.S. operation, said that
progress is being made, with the U.S. grocery business showing low
single-digit percentage growth for the quarter. Also, "Customers
are responding positively as we expand our merchandise assortment,
adding back items across all categories," Simon said.
The company has also opened several Wal-Mart Express stores as
pilots in rural and urban areas in the U.S., with the goal of
having 15 to 20 stores by the end of the year. The new format's
size averages just 15,000 square feet and offers fresh foods and
general merchandise, a way to complement existing mammoth-sized
Wal-Marts and go up against dollar stores that have been taking
business from the retailer.
Wal-Mart also operates Sam's Club warehouse clubs in the U.S.,
with the unit's sales gains coming in well above estimates, while
7% operating-income growth led the company's divisions.
While seeing mixed performance in the U.S., the world's largest
retailer has grown earnings with significant aid from its
international business. In the first quarter, "all of our markets
had encouraging comparable-store sales results," with Mexico,
China, and Chile having the highest comps, said Doug McMillon, head
of international operations.
Meanwhile, Wal-Mart on Monday threatened to walk away from a
proposed $2.4 billion acquisition of South African retailer
Massmart if conditions are imposed following recommendations by the
country's Competition Commission. The deal is important for
Wal-Mart as it seeks a foothold to tap into Africa's growing
consumer class.
For the quarter ended April 30, Wal-Mart posted a profit of $3.4
billion, or 97 cents a share, up from $3.3 billion, or 87 cents a
share, a year earlier. Discontinued operations cut the latest
result by a penny. In February, the company had forecast a profit
of 91 cents to 96 cents a share. Profit growth occurred on lower
overhead and income taxes while earnings per share increased more
markedly thanks to share buybacks reducing stock outstanding some
7%.
Revenue rose 4.4% to $104.19 billion, beating the
$102.93-billion Wall Street estimate, according to a Thomson
Reuters poll.
International sales jumped 12%, and were up 6.2% in constant
currencies, as operating earnings increased 1.2%. U.S. sales edged
up 0.6%. For the current quarter, Wal-Mart projected earnings from
continuing operations of $1.05 to $1.10, bracketing the average
Street estimate.
Wal-Mart shares were off 0.6% to $55.70 in premarket
trading.
-By Karen Talley, Dow Jones Newswires; 212-416-2196;
karen.talley@dowjones.com
-Matt Jarzemsky and Kevin Kingsbury contributed to this
article