NEW YORK — Most retailers would love to have Wal-Mart Stores Inc.’s problems.
The world’s largest company on Wednesday bemoaned second-quarter sales that were below plan, but reported that earnings clipped along at their usual double-digit pace, fattening the bottom line by more than a fifth.
For the three months ended July 31, the Bentonville, Ark.-based retail titan said net income swelled 21.1 percent to $2.44 billion, or 56 cents a diluted share. By comparison, last year the company had profits of $2.02 billion, or 45 cents. Earnings per share included a gain of 4 cents from the May sale of shipping firm McLane Company, now a discontinued operation, to Berkshire Hathaway.
Excluding the gain, EPS was 52, matching consensus estimates.
Net revenues for the period rose 11.4 percent to $62.23 billion from $56.78 billion a year ago, while company-wide comps for the quarter advanced 3.2 percent.
“Sales lagged our plan in the Wal-Mart operations,” said chief executive officer Lee Scott on a conference call. “Although we saw improvements late in the quarter, we continue to have opportunities, particularly in our weekend business. We are putting more emphasis on in-stock and on staffing levels to better serve our customers during key periods. We are also adding new products, such as the recent addition of Levi’s and Sony to our assortment, and continuing to roll back prices to drive customer value.”
By segment, Wal-Mart discount stores, which include Supercenters, saw operating profit grow 9.3 percent to $3.32 billon from $3.04 billion last year, as sales pushed ahead 10.2 percent to $42.57 billion from $38.64 billion. Comps gained 3.1 percent.
But even mighty Wal-Mart wasn’t immune to the markdown pressures coursing through retail.
“Although gross margin improved in the period,” said Scott, “markdowns in the quarter were higher than normal. Improved sales momentum and new products should result in a reduction in markdowns in future periods.”
The effect was not felt company-wide, said Tom Coughlin, vice chairman of U.S. operations, on the call, noting consolidated gross margin expanded 22 basis points to 22.9 percent of sales due to “improved mix and global sourcing.”However, he added, “Lower-than-planned sales and higher-than-planned markdowns clearly impacted our results.”
Wal-Mart shares came off the 52-week high of $58.80 established at Tuesday’s close and ended Wednesday’s New York Stock Exchange session off 73 cents, or 1.2 percent, at $58.07.
Scott noted Wal-Mart, like many retailers, saw an uptick in spending in July as the new tax withholding rates and child care tax credits put more cash in consumers’ pockets and the company’s coffers. Looking at the bigger economic picture, however, Scott warned that “further increases in consumer spending will require improvements in employment and real income.”
Still, Wal-Mart is better positioned than most to wait out any economic recovery.
“With same-store sales gains having picked up in recent months to the current 3 to 5 percent range, it seems clear the business is running smoothly,” wrote A.G. Edwards & Sons analyst Robert Buchanan in a research note. “With some lousy weather [too cool for an extended period] having dampened sales and backed up inventories earlier this year, by now, with an assist from Mother Nature, Wal-Mart would seem to have addressed this issue.”
Based on its stock valuation rather than its performance, Buchanan cut his Wal-Mart rating to “hold” from “buy.”
Wal-Mart finished the quarter with a 9 percent inventory increase and Buchanan estimates third-quarter sales will grow 11 percent.
At Wal-Mart’s international division, sales broke the $10 billion barrier in the quarter, climbing 18.8 percent to $11.51 billion from $9.69 billion last year. That translated into an 18.9 percent jump in operating earnings to $561 million from $472 million a year ago. Sales exceeded plan, said treasurer Jay Fitzsimmons on the call, with particularly strong performances in Mexico, Brazil and the U.K. A calendar shift that put Easter sales into this year’s second quarter as opposed to last year’s first quarter aided comparisons, said Fitzsimmons, as did a benefit to revenues from currency exchange of $578 million.
Wal-Mart’s Sam’s Club warehouse business exceeded the firm’s forecast with a 12.8 percent increase in operating profit to $309 million from $274 million in the prior-year period. Sales were up 7.7 percent to $8.55 billion from $7.94 billion, and comps outpaced the discount stores with a 3.6 percent improvement.“In an earlier call, I said that I didn’t think Sam’s earnings growth would meet our expectations until well into the second half of this year,” Scott said. “I am glad to admit I was wrong.”
Overall, for the first half of the fiscal year, Wal-Mart’s income rose 17.9 percent to $4.31 billion, or 98 cents a diluted share, from $3.65 billion, or 82 cents, a year ago. EPS included the 4 cent gain from the McLane sale.
Net revenues advanced 10.6 percent to $120.46 billion from $108.91 billion last year, as six-month same-store sales increased 2.7 percent. Wal-Mart discount stores posted an 8.7 percent gain in operating income to $6.07 billion on a 9.6 percent rise in sales to $81.19 billion. The division’s comps grew 3 percent.
In guidance, Wal-Mart said third-quarter EPS from continuing operations should be 45 to 47 cents on a comp-store sales increase of 3 to 5 percent. For the full fiscal year, Wal-Mart said it is comfortable with the high end of its previous guidance of $2 to $2.05.
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