Wal-Mart Stores Inc.’s (WMT) fiscal second-quarter earnings rose 5.7% on strong international sales and same-store-sales growth in the U.S., but the retailer continues to see tough economic conditions.
Wal-Mart also raised and narrowed its estimate for full-year earnings from continuing operations to between $4.83 and $4.93 a share from its February forecast of $4.72 to $4.92 a share.
Wal-Mart has seen its results challenged of late as its core lower-income customers in the U.S. contend with high gasoline prices and persistently high unemployment levels. Chief Executive Mike Duke said customers living paycheck-to-paycheck “remains pronounced” in the U.S. and international markets. There are “continuing economic pressures,” Mr. Duke said.
But strong expense-control efforts have helped Wal-Mart’s margins and more British shoppers have been flocking to Wal-Mart’s Asda Stores supermarket chain amid increased austerity measures in Europe.
In the U.S. Wal-Mart has been aggressively lowering prices to woo customers, so while customer traffic rose during the quarter, sales still missed analysts’ expectations.
The results “were decent compared with last quarter but showed a hair of a slowdown,” said John Tomlinson, retail analyst at ITG Investment Research.
The second quarter makes it a year that Wal-Mart U.S. has seen same-store sales rise on a quarterly basis after nine straight declines. “We continue to win back customers and attract new ones,” Mr. Duke said. Wal-Mart lost customers in droves when it revamped operations, taking out merchandise that customers wanted and straying from the everyday-low-price approach it was founded on.
International “remains our growth engine, but at a slightly slower pace,” Duke said. “We are moderating our strategic investment in new stores in three emerging markets, as we focus our leadership teams on improving comp sales in existing stores.”
The second quarter also saw Wal-Mart continuing an investigation into allegations of bribery at its operations in Mexico, a black eye that legal experts say could prompt years of stepped-up regulatory scrutiny in the U.S. and hundreds of millions of dollars in fines if shown to be true. Two U.S. House Democrats recently sent Mr. Duke a letter that suggested the Mexico affiliate may have engaged in “questionable” financial behavior such as tax evasion and money laundering, in addition to prior allegations of bribery.
For the quarter ended July 31, Wal-Mart reported a profit of $4.02 billion, or $1.18 a share, up from $3.8 billion, or $1.09, a year earlier. The year-earlier quarter included a net charge of three cents a share for several items. In May, the company forecast earnings from continuing operations of $1.13 to $1.18 a share.
Revenue rose 4.5% to $114.3 billion, short of the $115.75 billion expected by analysts polled by Thomson Reuters.
Operating margin slipped to 5.6% from 5.8%.
International sales rose 6.4%, as operating income increased 5.4%.
Excluding fuel, same-store sales rose 2.2% at Wal-Mart stores in the U.S., compared with its May projection of a 1% to 3% increase. Same-store sales at Sam’s Club climbed 4.2%, excluding fuel, also in line with the company’s 4% to 6% growth prediction.
For the current quarter, the company expects same-store sales to rise 1% to 3% at Wal-Mart and to increase 3% to 5% at Sam’s Club.
Shares were trading 2.8% lower at $72.38 premarket. The stock is up 25% so far this year.