• Wal-Mart cuts profit outlook on shopper worries
     | August 16,2013
    AP Photo

    Wal-Mart Stores Inc. reported its quarterly financial results Thursday.

    NEW YORK ó Wal-Mart Stores Inc., the worldís biggest retailer, said the weak global economy continues to batter its low-income shoppers.

    The chain on Thursday cut its annual profit and revenue outlook for the year after reporting second-quarter results that missed Wall Street estimates. The companyís stock fell nearly 3 percent on the news.

    Wal-Martís sober assessment adds to worries about consumer spending that arose when Macyís Inc. lowered its profit expectations for the year after reporting disappointing results on Thursday and Kohlís Corp. did the same on the following day even after posting solid results.

    But Wal-Martís results are even more troubling because it is considered an economic bellwether, with the company accounting for nearly 10 percent of nonautomotive retail spending in the U.S. Wal-Martís latest performance appears to show that many people continue to struggle in the U.S. and abroad.

    In the U.S., while jobs are easier to get and the housing market is gaining momentum, these improvements have not been enough to get Americans to spend. On top of that, Wal-Mart said Americans continue to struggle with a 2 percentage-point increase in the Social Security payroll tax since Jan. 1.

    During a call with the media, Wal-Mart Chief Financial Officer Charles Holley said the top three concerns among its customers are jobs, food costs and gas and energy prices.

    ďThe retail environment remains challenging in the U.S. and our international markets, as customers are cautious in their spending,Ē Holley said in a statement, noting a ďreluctanceĒ among customers to spend on things items like flat-screen TVs.

    The Bentonville, Ark.-based retailer said second-quarter net income rose 1.3 percent to $4.07 billion, or $1.24 per share, for the three months ended July 31. That compares with $4.02 billion, or $1.18 per share, a year earlier.

    Excluding a one-time charge for a certain non-income tax matter, earnings per share would have been $1.25. That matches Wall Streetís estimates.

    Net sales rose 2.4 percent to $116.2 billion. That figure excludes membership fees from its Samís Club division. The number came below estimates of $118.09 billion in net sales, according to FactSet research firm.

    U.S. Wal-Mart stores, which account for 59 percent of the companyís total sales, posted the second straight quarter of declines in a key revenue figure after six consecutive quarters of increases. Revenue at stores open at least a year ó considered an important measure of a retailerís performance ó fell 0.3 percent at Wal-Martís U.S. namesake business. Thatís below the 0.7 percent gain analysts were expecting.

    Adding in Samís Club and international stores, revenue at stores open at least a year was flat compared with a year ago. It rose 1.7 percent at Samís Club.

    Overall, total sales increased only modestly for Wal-Martís U.S. business, Samís Club and its international division for the latest quarter. Wal-Martís U.S. division posted a total sales increase of 2.1 percent to $68.73 billion, while Samís Club saw a 2.6 percent increase to $14.53 billion.

    At Wal-Martís U.S. stores, clothing did well as the discounter has refocused its offering on basics like socks and no-frills jeans that its shoppers need. During a call with reporters, Holley said it was too early to discuss how the back-to-school business is faring. But he said heís encouraged by early sales of childrenís clothes.

    Still, sporting goods and entertainment products like toys saw declines in the quarter. Cooler weather earlier in the spring hurt merchandise like water toys and pools. And the lack of innovation in the electronics area limited business. But Holley told reporters that results also were hurt because shoppers are hesitant to spend on items they really donít need.

    In the grocery aisles, Wal-Mart saw a slight decline in sales. A big factor was lower-than-expected inflation, or even deflation in certain cases, such as with snacks and frozen food. But as Wal-Mart saw in the first quarter, shoppers traded down to cheaper products to save money.

    The companyís international business had an increase of 2.9 percent to $32.96 billion.

    In a prerecorded conference call, Doug McMillon, president and CEO of Wal-Martís international division, said that during the first half of the year, consumers in both developed and emerging markets curbed spending. ďWe believe these trends will persist through the remainder of the year,Ē he said.

    Wal-Mart said it now expects total sales to rise 2 to 3 percent for the full year. The companyís previous forecast was for growth of 5 percent to 6 percent.

    The company also took a dime per share off its full-year profit outlook, cutting it to between $5.10 and $5.30 per share, from between $5.20 and $5.40 per share. Analysts were expecting $5.29 per share.

    Wal-Martís stock fell $2.12 to $74.28 in Thursday late afternoon trading.

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