clock menu more-arrow no yes

Filed under:

Wal-Mart posts flat 2Q profit, beats expectations

NEW YORK — Wal-Mart Stores Inc. on Thursday reported second-quarter income virtually unchanged from a year ago, but results beat Wall Street expectations.

The world's largest retailer also raised the low end of its profit outlook as it benefits from a series of cost-cutting moves, particularly from inventory controls, and draws frugal shoppers away from rivals.

But Wal-Mart officials cautioned that the economy will continue to remain difficult in coming months, forcing their shoppers to keep buying less-expensive store label products and smaller-pack sizes. And they don't expect the holiday season to be dramatically better than last year.

"Overall, our customers are more disciplined in their spending," Mike Duke, Wal-Mart's president and chief executive, told investors during a pre-recorded call Thursday. "There's a new normal" of saving more and spending less, he added.

As for the holidays, Chief Financial Officer Tom Schoewe told reporters during a conference call he's "hopeful that it will be better than last year."

"Last year was a very very unusual time," he added.

Wal-Mart earned $3.44 billion, or 88 cents per share, in the quarter ended July 31. That compares with $3.45 billion, or 87 cents per share, in the year-ago period. Revenue fell 1.4 percent to $100.08 billion.

Analysts surveyed by Thomson Reuters projected earnings per share of 85 cents on revenue of $102.9 billion.

Wal-Mart shares rose $1.11 to $51.62 in premarket trading, after closing at $50.51 Wednesday, as investors appeared pleased that the company was stepping up its cost cuts.

But same-store sales, or sales at stores opened at least a year, slipped 1.2 percent during the period, compared with a 4.3 percent gain in the year-ago period, whose sales were boosted by the distribution of government stimulus checks.

That figure provides the first glimpse of a key sales measurement in the quarter, because Wal-Mart stopped reporting those figures on a monthly basis after announcing April results. Schoewe noted that same-stores sales were also hurt by price deflation in dairy products as well as consumer electronics.

"In a sales environment more difficult than we expected, we managed our operations in a disciplined manner," Duke said in a statement. "Our U.S. segments delivered strong inventory performance, which contributed to the company's healthy increase in year-over-year earnings. We are accelerating our focus on reducing our expenses."

Schoewe told reporters that inventory at Wal-Mart U.S. stores was down 6 percent during the quarter from the year-ago period.

Wal-Mart has been one of the few bright spots in retailing this year, benefiting from shoppers focusing on necessities during the recession. But a big part of its success in drawing new customers away from higher-priced stores has been largely due to its low prices and its efforts to clean up stores and improve merchandise. That all came together just as the economy started to sour.

Now Wal-Mart is embarking on an ambitious store remodeling plan and is sprucing up its merchandise even more in the hope of retaining its new customers after the economy recovers. It plans to redo up to 600 stores this fiscal year at a cost of $1.6 billion to $1.7 billion.

The new store format includes lower shelving that will make it easier to see across the store, better lighting and wider aisles. The chain also is adding more brands and expanding its electronics offerings.

But Wal-Mart shares, which soared 20 percent last year, have fallen 11 percent since the beginning of the year as investors turn to the beaten-down shares of more upscale companies like Williams Sonoma Inc., which Wall Street believes didn't have much further to fall and could benefit when shoppers start spending again.

Right now, the recovery in consumer spending doesn't seem near. Wal-Mart's Schoewe said early signs for the back-to-school season show that shoppers are focusing on replenishing basics and are fixated on "value" but he believes that Wal-Mart is picking up market share across all categories of business.

He also noted that he sees the continued trend toward shoppers financing more of their purchases with cash and debit cards instead of credit cards.

Given the challenging environment, the company predicts same-store sales anywhere from unchanged to up 2 percent in the third quarter ended Oct. 30.

Wal-Mart boosted the low end of its annual profit guidance to a range of $3.50 to $3.60 per share, from $3.45 to $3.60 per share. Analysts surveyed by Thomson Reuters predict $3.56 per share.

For the third quarter, Wal-Mart expects earnings per share between 78 cents and 82 cents per share, including a 3-cent negative impact from currency exchange rates. Analysts surveyed by Thomson Reuters expect 80 cents per share.