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Wal-Mart Boosts Forecast After Second Quarter Tops Estimates

Published on Aug 18 2016 2:30 PM in Retail tagged: Walmart / US Retail / U.S. / US consumers

Wal-Mart Boosts Forecast After Second Quarter Tops Estimates

Wal-Mart Stores Inc. increased its annual earnings forecast after second-quarter results topped analysts’ estimates, a sign the world’s largest retailer is pulling business away from rivals such as Target Corp.

Sales at U.S. Wal-Mart stores open more than 12 months rose 1.6 percent last quarter, which ended July 31, the Bentonville, Arkansas-based company said in a statement Thursday. The closely watched measure -- known as “comps” -- had been projected to gain 1 percent, according to Consensus Metrix.

The growth signals that Chief Executive Officer Doug McMillon is making progress with efforts to lower Wal-Mart’s prices and improve customer service. Since taking the helm in 2014, he has boosted pay for U.S. workers and poured money into online operations, aiming to provide a better experience for customers and stem defections to Amazon.com Inc. He also has pushed for a return to Wal-Mart’s everyday-low-price roots.

“Our strategy in the U.S. is working as we delivered an eighth consecutive quarter of positive comps, and international also performed well,” McMillon, 49, said in the statement.

The shares rose as much as 4.6 percent to $76.30 in early trading on Thursday after the results were released. They had been up 19 percent this year through Wednesday’s close.

Wal-Mart now expects annual earnings to be $4.15 to $4.35 a share this year, excluding some items. That compares with a previous forecast of $4 to $4.30. Earnings amounted to $1.07 a share in the second quarter. Analysts predicted $1.02 on average, according to data compiled by Bloomberg.

Revenue grew 0.5 percent to $120.9 billion last quarter, compared with a $120.3 billion projection.

Target’s Woes

Target, Wal-Mart’s top brick-and-mortar rival, said on Wednesday that its same-store sales fell 1.1 percent. The company also cut its guidance for the year, raising concern about a broader slump. Retailers have been warning of shaky consumer spending, with shoppers shifting their dollars away from traditional stores.

Against that backdrop, Wal-Mart gave a rosier outlook. Comparable sales for the U.S. business will be up as much as 1.5 percent in the current quarter, the company said.

Jet Acquisition

Wal-Mart’s online business grew 12 percent last quarter, an acceleration from the previous period. Online sales growth had been slowing, and Wal-Mart has been trying to shore up the business. Earlier this month, the company announced it was paying $3.3 billion for web startup Jet.com to get access to the company’s technology and management.

“Growth here is too slow,” McMillon said in May about the online business.

Wal-Mart said on Thursday that it expects the Jet.com acquisition to hurt earnings by about 5 cents this year, due to operating losses and transaction expenses.

Wal-Mart also is under increasing wage pressure. The company moved to boost worker pay over the past two years, raising minimum wages to $10 an hour in February. But labor organizations are pushing for a $15-an-hour base.

Outside the U.S., Wal-Mart’s sales grew in every market but the U.K. and China, where the company faces heavy competition.

Another weak spot was the Sam’s Club unit, where comparable sales increased just 0.6 percent and store traffic declined. Still, those numbers were a bit better than the company had been anticipating.

News by Bloomberg, edited by ESM. To subscribe to ESM: The European Supermarket Magazine, click here.

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