Wal-Mart Corruption Probe Costs Rise

The world’s largest retailer on Thursday revealed it spent $73 million in the first quarter on matters related to FCPA-related issues.

A Wal-Mart store.

Wal-Mart Stores Inc.’s corruption probe is becoming increasingly expensive for the retailer.

This story first appeared in the May 17, 2013 issue of WWD.  Subscribe Today.

The world’s largest retailer on Thursday revealed it spent $73 million on matters related to investigations into whether it violated the Foreign Corrupt Practices Act. This comes on top of the $157 million it spent in fiscal 2013 on FCPA-related issues.

The company is being investigated by the Securities and Exchange Commission and the U.S. Department of Justice regarding the FCPA, while Wal-Mart itself is looking into its operations in Brazil, India, China and Mexico.

The $73 million Wal-Mart spent in the first quarter was higher than the $40 million to $45 million forecast. Overall corporate expenses rose by $200 million or 44.4 percent. Wal-Mart did not reveal the total amount of corporate expenses in the first quarter.

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“We’re working closely with third-party anticorruption compliance experts…on anticorruption support and training,” said Mike Duke, the retailer’s president and chief executive officer. “Beyond anticorruption, our comprehensive global compliance review continues. Our programs are applicable to 14 compliance areas, including food safety and ethical sourcing, among others.”

Wal-Mart did not discuss the scandal over working conditions in Bangladesh. On Tuesday, the company released its own plan for improving worker safety in the Asian country. Wal-Mart plans to go it alone compared to other U.S. retailers and brands, which are discussing their own program, and separate from the IndustriALL Global Union-led agreement signed by 37 companies, including PVH Corp. and Abercrombie & Fitch Co.

Wal-Mart revealed its spending on FCPA-related issues in reporting its financial results for the first quarter. Faced with a restrained consumer, Wal-Mart’s same-store sales fell 1.4 percent in the first quarter versus last year’s 2.6 percent increase, the company said Thursday. Sales were impacted by a delay in income tax refund checks, challenging weather conditions, lower-than-expected grocery inflation and the payroll tax increase.

The decline came as consolidated net income in the quarter rose 1.1 percent to $3.78 billion, from $3.74 billion last year, Wal-Mart said.

Net sales were $113.43 billion, a 1 percent increase from $112.26 billion last year. Total revenue was $114.19 billion, a 1 percent rise over $113.01 billion in the same last-year period.

Earnings per share rose 4.6 percent to $1.14, from $1.09 last year. Wall Street analysts expected Wal-Mart to report EPS of $1.15 for the quarter and revenue of $116.4 billion.

Sales for Wal-Mart U.S. rose 0.3 percent to $66.6 billion in the first quarter ended April 26, from $66.33 billion in last year’s period.

The retail giant’s foot traffic was down 18 percent in the quarter and has been eroding for some time both in the U.S. and internationally.

“We didn’t have the first quarter performance we wanted as a company,” Duke said in a prerecorded call.

Apparel comps fell in the low single-digits, driven by soft demand for spring items. Basics delivered a low-single-digit increase and kids and accessories showed gains.

Gross profits rose 1.2 percent in the quarter, driven by supply chain productivity. Operating expenses as a percentage of sales were 19.1 percent, relatively flat to last year. Operating income rose 5.9 percent, while consolidated operating income grew 1.1 percent to $6.5 billion, slightly ahead of sales growth.

Bill Simon, Wal-Mart U.S. president and ceo, forecast comps in the second quarter in the range of flat to positive 2 percent for the period of April 27 to July 26. EPS in the second quarter were projected to be $1.22 to $1.27.

E-commerce sales grew more than 30 percent in the quarter, with over 45 million people in the U.S. visiting walmart.com each month. Technology such as self-service checkout Scan and Go is improving productivity, while the Ship from Store program in 35 stores is expanding considerably, Simon said.

Wal-Mart in the quarter added 38 stores and converted eight units to Supercenters. Neighborhood Markets delivered a low-single-digit comp store gain. Walmart Express reported double-digit comp increases.

Impacted by weak consumer spending, comps in Canada and the U.K. grew 1.3 percent and declined 1.3 percent, respectively. Wal-Mart China’s net sales grew 5.4 percent over last year’s quarter, while comps moved ahead 1 percent. Japan’s economy continues to slow. Net sales dropped 1.7 percent and comps fell 2.3 percent. E-commerce market share grew in the U.K., Brazil and China, where last year’s acquisition of Yihaodian, which provides same-day delivery to three cities, is giving Wal-Mart a platform to compete.

Wal-Mart stock on Thursday closed at $78.50, down $1.36, on the New York Stock Exchange.