Wal-Mart Stores Inc. (NYSE: WMY) posted earnings for the first quarter ended April 30, showing a mixed performance results from its domestic and overseas stores.
With the U.S. economy showing signs of recovery, wealthier customers who flocked to the world’s largest retailer in preparation for the feared next Great Depression have left for more upscale retailers. Wal-Mart’s traditional customers continue to spend at the store but at a more muted pace as the heralded recovery won’t include robust job growth and lower consumer prices.
Profits of $3.32 billion, however, were strong anyway, up 10 per cent from the equivalent period last year, and were driven by cost-cutting measures and robust growth from its overseas stores. Revenue rose to $99.85 billion, up 6 per cent from the equivalent quarter last year of $94.24 billion. Earnings per share reached 88 cents per share.
Guidance for the second quarter includes an earnings range of 93 cents and 98 cents, mostly lower than Wall Street’s mean estimate of 98 cents.
Wal-Mart offered a guarded outlook for the second quarter.
As consumer confidence returns, defecting customers returning to upscale retailer Target or finding alternatives at increasingly popular dollar stores drove down traffic in U.S. Wal-Mart stores during the quarter. Wal-Mart said it intends to fight for these customers through a groceries price-cutting campaign and by restocking items cleared from the floors during its store de-cluttering campaign launched last year.
Wal-Mart’s same-store revenue drop of 1.1 per cent marks a stark contrast to reports from retailers Home Depot, Lowe’s and T.J.X (parent of TJ Maxx) which show a smart rise in the top-line. Wall Street expected a drop in revenue of 0.6 per cent.
“The economy is coming back, but (Wal-Mart is) not capturing their share,” said Craig Johnson, president of retail consultant firm Customer Growth Partners.
Wal-Mart chief executive officer Tom Schoewe surmises that mega-retailer may have lost more affluent customers during the quarter, leaving the hardest hit demographic groups remaining as its customers.
Wal-Mart, considered a barometer of consumer spending for discretionary items, reported disappointing sales among many discretionary categories, including clothing, home furnishings and entertainment. Management cites high unemployment and higher fuel costs as the reason for lagging sales and traffic.
“It’s bad enough that Wal-Mart guided lower, but what it had to say about spending trends had the frugality label all over it,” wrote David Rosenberg, economist at Gluskin Sheff, in a note to clients.
Wal-Mart acknowledges its tactical blunders, saying it made the mistake of not engaging in price-cutting wars with rivals and not maintaining its full array of merchandise.
“Wal-Mart’s customers are finding new stores to shop,” said analyst Brian Sozzi with Wall Street Strategies, saying the offerings available at dollar stores are much improved.
In contrast to disappointing U.S. results, Wal-Mart’s international business posted strong revenue growth of 21.4 per cent over last year, with standouts coming from stores located in China, Brazil and Mexico. With more than 60 per cent of new floor space added overseas, Wal-Mart seeks to offset sluggish U.S. sales with faster-growing pastures in Asia and the Americas (ex-U.S.)
Wal-Mart reported 25 per cent of total revenue was derived outside of the U.S.
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