Wal-Mart Posts Earnings That Top Estimates After Sales Rise

By Renee Dudley

Photographer: Drew Angerer/Bloomberg

Wal-Mart Stores Inc. Chief Executive Officer Doug McMillon, who took the post in... Read More

Wal-Mart Stores Inc. (WMT), the world’s largest retailer, posted third-quarter earnings that beat analysts’ estimates after U.S. same-store sales grew for the first time in seven quarters.
Earnings amounted to $1.15 a share in the period, the Bentonville, Arkansas-based company said today in a statement. Analysts had predicted $1.12 on average, according to data compiled by Bloomberg. U.S. comparable-store sales -- a closely watched benchmark -- increased 0.5 percent in the period, which ended Oct. 31.
While growth remains muted in the U.S., the sales increase signals that Chief Executive Officer Doug McMillon is making progress in his turnaround plan. McMillon, who took the post in February, has been adding more small-format stores to increase revenue and trying to
improve customer service. The company also may benefit from falling gas prices and a drop in U.S. unemployment.
“Business remains tough, but lower gas prices should provide a rare tailwind this holiday,” David Strasser, an analyst for Janney Capital Markets, said in a note before the earnings release. Strasser rates the shares a buy.
Wal-Mart rose as much as 2.4 percent to $81.14 in early trading. The shares had climbed less than 1 percent this year through yesterday, trailing the 10 percent gain for the Standard & Poor’s 500 Index. Wal-Mart and its subsidiaries employ about 2.2 million people worldwide, and the company has more than 11,000 stores.

Forecast Reduction

Even as sales rebounded, the company lowered its earnings forecast for the year to $4.92 to $5.02 a share -- down from as much as $5.15. The new outlook includes a 3-cent impact from the closing of underperforming stores in Japan. Wal-Mart had already cut its forecast earlier this year, citing higher U.S. health-care costs and increased spending in e-commerce, where it aims to challenge Amazon.com Inc.’s dominance.
Wal-Mart and federal authorities also are investigating possible violations of the Foreign Corrupt Practices Act in the company’s operations in Mexico, Brazil, China and India. FCPA and compliance-related costs were about $41 million last quarter.
Third-quarter income slipped 0.7 percent to $3.71 billion, compared with $3.74 billion, or $1.14 a share, a year earlier. Total revenue rose 2.9 percent to $119 billion in the period.

Smaller Stores

Wal-Mart said in February it was increasing its capital spending by an additional $600 million this year to add more Neighborhood Market and Express stores. Those smaller-format outlets have outperformed its supercenters and Sam’s Club locations. Sales at Neighborhood Market stores increased 5.5 percent last quarter, outpacing the growth of its traditional superstores.
Net revenue at Wal-Mart’s U.S. stores rose 3.4 percent to $70 billion, while international sales climbed 1.7 percent to $33.7 billion. Sam’s Club’s net sales gained 2.3 percent, and e-commerce revenue climbed 21 percent.
While Wal-Mart benefited from Neighborhood Market growth, a reduction in food-stamp benefits took a toll on sales. In the U.S., the average transaction rose 1.2 percent, though traffic shrank 0.7 percent.
“We’re still not satisfied,” McMillon said in a conference call. “We have areas to improve, including in the customer experience and in our price leadership position, and we’re taking the steps necessary to fix these areas.”