Wal-Mart profit rises as it lures back frugal shoppers
Published on Thursday August 16, 2012 ANNE D’INNOCENZIO AP Retail Writer
NEW YORK — Wal-Mart Stores Inc.’s second-quarter net income rose 5.7 per cent as the world’s largest retailer is wooing back frugal shoppers by doubling down on low prices.
The discounter also is raising its full-year profit outlook.
But quarterly revenue that came in short of expectations disappointed investors, who sent the company’s stock down 3 per cent to $71.99 in premarket trading.
Wal-Mart’s results are considered a bellwether of consumer spending because the company draws nearly 10 per cent of nonautomotive retail spending in the U.S. The latest report card from the discounter shows that low-income shoppers are willing to buy — if it’s at rock-bottom prices.
Wal-Mart has had to work hard to get shoppers back. The business had been struggling as its core low-income customers were hard hit by joblessness and other challenges in the down economy. Adding to that, Wal-Mart’s U.S. stores, which account for 60 per cent of the company’s revenue, had made some mistakes by veering away from its “everyday low prices” strategy and getting rid of popular merchandise.
But Wal-Mart last year began adding back 10,000 products and refocused on keeping prices low throughout the store. As a result, revenue at Wal-Mart’s U.S. division rose 3.8 per cent to $67.35 billion.
Revenue at stores open at least a year — considered a key measure of a retailer’s health because it excludes the impact from stores that open and close during the year — rose 2.2 per cent in the division, excluding fuel. The figure, which beat the 2.1 per cent Wall Street estimate, marks the fourth consecutive quarterly gain for the division after nine straight quarters of declines.
For the overall U.S. business, revenue at stores opened at least a year rose 2.5 per cent, including a 4.7 per cent increase at the company Sam’s Club warehouses.
“Given continuing economic pressures, we believe that our price leadership and value are growing in importance to customers across income levels,” Mike Duke, Wal-Mart’s president and CEO, said in a statement.
Wal-Mart’s international business, which produces more than a quarter of its revenue, has remained strong, but the company is striving to make it more profitable. Wal-Mart is focusing on improving its business in Brazil and China. The company’s international business increased 6.4 per cent to $32.01 billion in the quarter.
The company reported net income of $4.02 billion, or $1.19 per share, for the quarter ended July 31. That compares with $3.80 billion, or $1.09 per share, a year ago.
Revenue excluding membership fees at Sam’s Club rose 4.5 per cent to $113.53 billion.
Analysts had expected earnings of $1.17 per share on revenue of $114.63 billion.
The company said it expects third-quarter net income between $1.04 per share and $1.09 per share. Analysts had expected $1.05. For the full year, the company now expects earnings per share to be in the range of $4.83 to $4.93. That compares with its original forecast of $4.72 to $4.92 per share. Analysts had expected $4.93.
The company continues to deal with allegations of bribery in its Mexico operations, which surfaced in late April and could threaten momentum in its international business, Wal-Mart’s fastest-growing division. The company has launched its own internal investigation into the matter and is working with government officials in the U.S. and Mexico. At the company’s annual meeting in June, company officials pledged that they will get to the bottom of the allegations. Wal-Mart has also been overhauling its compliance program.
Still, investors, who pushed the stock down right after the allegations surfaced in late April, had sent shares up 25 per cent since mid-May.