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Wal-Mart Lowers Forecast After US Dollar Crimps Overseas Sales

Published on Feb 18 2016 2:29 PM in Retail tagged: US / Wal-Mart / Featured Posts

Wal-Mart Lowers Forecast After US Dollar Crimps Overseas Sales

Wal-Mart Stores Inc.lowered its annual sales forecast in a move it blamed on the strong dollar, adding another headache to a retailer struggling with slow US traffic and decelerating e-commerce growth.

Wal-Mart now expects net sales to be "relatively flat" this year, compared with a previous forecast for an increase of as much as 4 per cent, according to a statement Thursday. The earlier guidance didn’t account for currency changes, said the company, which also cited a push to close underperforming stores for pulling down sales.

The outlook signals that Wal-Mart still faces hurdles in recovering from several years of slumping growth. Its US same-store sales increase also was slow last quarter, rising just 0.6 per cent. That fell short of the 1 per cent analysts had predicted. Though traffic to Wal-Mart stores is climbing modestly, customers are spending less money on their visits.

The world’s largest retailer also raised its quarterly dividend to 50 cents a share from 49 cents.

The shares dropped as much as 5.2 per cent to $62.65 in early trading after the results were posted.

Profit Beats

Profit topped projections in the fourth quarter, helped by efforts to keep a lid on expenses. Excluding some items, earnings were $1.49 a share in the period. Analysts had predicted $1.46 on average, according to data compiled by Bloomberg.

Fourth-quarter revenue fell 1.4 per cent to $129.7 billion, also hurt by currency effects. Analysts had predicted $130.6 billion for the period, which ended January 31. Sales online growth slowed to 8 percent, despite increased spending by the company on its Web operations.

The currency headwinds could hamper a rally for Wal-Mart after a dismal 2015. The stock fell 29 per cent last year but has shown signs of rebounding in 2016, gaining 7.8 per cent despite a tumbling market. Investors view the discount retailer as a safe haven if the US economy enters a recession. It may also gain from rising wages, particularly among lower-income consumers, and persistently low gas prices.

Slow Sales

Wal-Mart’s profit has been hurt by slowing U.S. sales, as well as increasing spending on employee pay and its online operations. Wal-Mart will pay $1.5 billion in higher wages in the fiscal year ending January 2017 as it raises its minimum wage to $10 an hour and gives a one-time raise to more than 1 million employees this month. Those added wages will contribute to profit falling between 6 per cent and 12 per cent this year, the company has said.

Wal-Mart said last month that it will close 269 stores worldwide, including all of its small-format express stores.

Wal-Mart has been focused on fixing up its 4,600 US stores after years of customer complaints about out-of-stock items, poor customer service and long waits at the checkout line. The company has raised pay in an effort to attract and retain better workers, implemented a new system to stock its shelves, and increased staff at the register.

So far, the company says the efforts are working. Last February, only 16 per cent of its U.S. locations met the company’s new standards for cleanliness and customer service. That number had reached more than 70 per cent as of November.

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

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