By  on August 14, 2014

Wal-Mart Stores Inc. today reported second-quarter results on par with Wall Street estimates, but cut its profit outlook for the year.

The world’s largest retailer reported a 3.4 percent decline in second-quarter profits attributable to shareholders to $3.92 billion from $4.06 billion in the corresponding period a year earlier. Earnings per share were $1.21 for the quarter ended July 31, a 1.6 percent decline from last year’s $1.23. Analysts predicted EPS of $1.21.

Consolidated net income attributable to the company inched up 0.6 percent to $4.09 billion from last year’s $4.07 billion.

Wal-Mart’s revenues were $119.3 billion in the second quarter, an increase of 2.6 percent over $116 billion in the same quarter last year. Same-store sales were flat in the period. Wal-Mart predicted same-store sales will be flat again in the third quarter ended Oct. 31.

The retailer lowered its EPS guidance for the full year to between $4.90 and $5.15, from $5.10 to $5.45, assuming third-quarter EPS of $1.10 to $1.20.

Operating income declined to $5.52 billion at Wal-Mart U.S., from $5.3 billion in the second quarter of 2013. Operating income at Wal-Mart’s international division rose 8 percent to $1.5 billion, from $1.38 billion, while operatingincome at Sam’s Club fell 4.6 percent to $494 million from $518 million.

Operating income was pressured by investments in additional associate hours and by higher health-care costs, the company said. A decrease in return-on-investment was primarily due to the decrease in operating income and continued capital investment in store growth and e-commerce.

“We wanted to see stronger comps in Wal-Mart U.S. and Sam’s Club, but both reported flat comp sales,” said Doug McMillon, president and chief executive officer of Wal-Mart Stores Inc. “Stronger sales in the U.S. businesses would’ve also helped our profit performance.”

McMillon said he was encouraged by the performance of the international division and the Neighborhood Market sales in the U.S. Wal-Mart, which has been accelerating the rollout of its small store formats. However, these may come under pressure from the Dollar Tree-Family Dollar combination, which will become a more formidable threat with 13,000 stores.

Wal-Mart is on track to deliver 180 to 200 new Neighborhood Markets this year. With solid comps, Wal-Mart’s test phase of Express will continue with the rollout of about 90 new units this year. The retailer committed an additional $600 million to accelerate small-format openings in the U.S. The majority of Neighborhood Market and Express units are scheduled to open late in the fourth quarter.

McMillon also praised e-commerce, which advanced 24 percent worldwide during the quarter. The company has been investing to enhance its e-commerce capabilities, including buying tech start-ups such as Luvocracy and redesigning its Web site. The redesign offers a streamlined search and a more personalized user experience. A better checkout process is coming in the near future, the company said.

During the call, executives talked more about e-commerce than brick-and-mortar, although McMillon made a point of saying, “I’m bullish on our core business. Supercenters are still relevant around the world and will play an important role for us for years to come. At the same time, we’re broadening our small store base globally and expanding our digital capabilities everywhere we operate.”

With Amazon in its sights, Wal-Mart has started construction on another new e-commerce fulfillment center in Indiana. “Investments like these will allow timely and cost-effective delivery of merchandise to millions of additional customers,” McMillon said.

The same push is happening globally. “We’re stepping up our investment in our e-commerce businesses for the rest of the year,” said Neil Ashe, president and ceo of global e-commerce. Brazil, Mexico and Chile saw double-digit sales growth in e-commerce, and Canada and Argentina rose by triple digits. In July, e-commerce launched in India. Yihaodian, the company’s e-commerce platform in China, grew net sales by double digits.

Despite the fact that the global economy remains challenged and customers are stretched, David Cheesewright, president and ceo of Wal-Mart International, said net sales grew 5.3 percent on a constant currency basis and 3.1 percent on a reported basis. The U.K., Mexico, Canada, Brazil, Argentina, Chile, Japan and Africa delivered positive sales.

Sam’s Club delivered a flat comp in the second quarter, with net sales lower than expected. Operating income was lower than last year. Sam’s Club’s lower-income Savings members were impacted by higher utility costs and traffic slowed across the country. The business member also remains pressured, said Rosalind Brewer, president and ceo of Sam’s Club.

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