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Wal-Mart results upbeat
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BENTONVILLE, Ark. (AP) — Surprisingly strong sales at Wal-Mart and an optimistic outlook from the world’s largest retailer lifted a pall that settled over much of the sector in the past two weeks.
The company’s shares jumped 9 percent in early trading Thursday and companies that had been beaten down after a slew of dismal earnings reports appeared to catch a draft from Wal-Mart.
Wal-Mart’s revenue climbed to $115.9 billion from $114.83 billion in the quarter, breezing past projections for $112.67 billion in revenue from industry analysts, according to a survey by Zacks Investment Research forecast.
Sales at U.S. stores open at least a year rose 1 percent, the seventh consecutive quarterly increase. Wal-Mart said it expects the sales measure to increase in the current quarter. The period also marked the sixth straight quarter of gains in traffic.
The sales metric is important because it strips away the volatility of recently opened or closed stores, providing a better look at how a retailer is doing. While the sales pace isn’t exactly robust, it was much better than many of its peers. And it showed that Wal-Mart’s efforts to spruce up its stores and to raise wages and improve training for its hourly workers are paying off.
Healthy sales at the Bentonville, Arkansas-based discounter came one day after Target Corp. reported slowing quarterly sales and said that it could see a decline for that measure in the current quarter. That would reverse almost two straight years of increases. Target is not alone though, as much of the retail sector, particularly department stores and mall-based clothing chains, is experiencing a sales slowdown, creating a lot of unease. Before Target, Macy’s Inc., J.C. Penney Co., Nordstrom Inc. and Kohl’s Corp. all posted first-quarter sales drops as pressure from off-priced stores like T.J. Maxx and online retailer Amazon.com rises.
“We’re improving our stores and deepening relationships with customers,” said CEO Doug McMillon. “Our customers are giving us positive feedback. I’m seeing it myself on store visits, and you can see it in the traffic numbers.”
While Americans are spending money, the problem for traditional retailers is that they seem to be spending it elsewhere. Economists have seen a shift in habits, with more disposable income going toward vacations, home improvement and dining out, rather than toward clothing or accessories. That has resulted in a mixed bag of results for the earnings season.
Wal-Mart is making lots of changes that it says will keep it competitive in a changing retail landscape. It’s spending $2.7 billion on higher wages and other investments for its hourly workers over a two-year period. Wal-Mart has maintained that lifting wages will mean happier workers who will better serve the customers. During a conference call with the media on Thursday, Wal-Mart executives said their employees are using their higher paychecks to spend more in the store.
Wal-Mart is cleaning up the stores, and improving its merchandise, particularly fresh produce. Wal-Mart is also trying to improve the experience of customers in its stores by better managing the number of registers open during peak traffic times.
Wal-Mart’s chief financial officer Brett Briggs told reporters on a call that there was still this “era of uncertainty” with how its customers spend their dollars. But he said the consumer environment was consistent. That differs from what Target’s CEO Brian Cornell told the media in a call on Wednesday. He highlighted a “volatile” consumer environment.
There was one red flag, however, and it arrived from the front lines in Wal-Mart’s fight with one of its most serious threats: Amazon.com.
Global e-commerce sales rose just 7 percent for the first quarter, weaker than the 8 percent growth in the previous quarter, and far below the 20 percent increases seen less than two years ago.
McMillon said that level of growth is “too slow.” While online sales in the U.S were stronger than elsewhere, McMillon said they’re not where they should be.
Biggs told reporters that investments in the online business will take time to pay off. He conceded that Wal-Mart is battling a perception that it does not have as many products for sale online as rivals. Wal-Mart is now offering more than 10 million items online.
And the company continues to sharpen its attack on Amazon. Last week, it announced that it was quickening its free-shipping pilot program to two-day delivery from three, and it’s cutting a dollar off the membership price. Membership is now $49 per year.
The pilot program was launched last year as a possible answer to Amazon Prime’s two-day shipping, a big reason for its explosive growth.
Amazon membership costs $99 a year, which comes with a wide array of perks, including household product subscriptions, one- and two-hour Prime Now delivery, free streaming music and video, photo storage and more.
The company also said Thursday that it’s expanded online grocery shopping to more than 40 markets in the U.S. as of this month, up from 20.
For the three months ended April 30, Wal-Mart Stores Inc. earned $3.08 billion, or 90 cents per share. That compares with $3.34 billion, or $1.03 per share, a year earlier.
Excluding one-time charges and benefits, per-share earnings were 98 cents, a dime better than Wall Street had expected.
Wal-Mart anticipates a second-quarter profit between 95 cents and $1.08 per share. Analysts polled by FactSet had been projecting 98 cents per share.
Wal-Mart shares are down 17 percent over the past 12 months, but up 3 percent so far this year. Shares gained $5.55 to reach $68.69 in afternoon trading.
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