Consumers don’t want to spend just yet, and that mind-set helped Wal-Mart Stores Inc. come up short in its first-quarter results.
Wal-Mart, an often-used barometer of consumer spending, said net income for the three months ended May 1 fell 7.5 percent to $3.34 billion, or $1.03 a diluted share, from $3.59 billion, or $1.11, a year ago. Revenues slipped 0.1 percent to $114.83 billion from $114.96 billion. Wall Street was expecting earnings per share of $1.04 a share on revenues of $116.3 billion.
The company also said same-store sales at its U.S. stores were up 1.1 percent, but comps were below consensus expectations of a 1.5 percent gain. Wal-Mart said U.S. operating income fell 6.8 percent to $4.6 billion, while the international business saw operating income down 11 percent to $1.1 billion. Currency fluctuations and a strong dollar also impacted profits at the company’s international operations. Despite the slowdown, Robert Drbul of Nomura Securities said Wal-Mart’s U.S. sales and comps were still a “solid result in the current macroeconomic environment.”
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Results at Wal-Mart are in line with the U.S. Commerce Department’s report earlier this month in which sales at department stores fell 2.2 percent to $13.7 billion in April, while general merchandise sales, a category that includes department stores and discounters, slipped 0.5 percent to $55 billion.
Investors weren’t happy with Wal-Mart’s results, and sent shares down 4.4 percent to $76.43 in Big Board trading. More than 21.3 million shares changed hands, compared with a three-month average volume of 6.8 million.
In the prerecorded conference call by Wal-Mart executives, Doug McMillon, president and chief executive officer, said, “Based on recent surveys, we know that many of our U.S. customers are using their tax refunds and the extra money from lower gas prices to pay down debt or put it into savings. They’re also using these funds for everyday expenses like utilities and groceries. That’s where we can be their destination of choice.”
He said that the company is “investing to win the future of retail, and I’m excited about the possibilities that our improved e-commerce capabilities will provide,” noting that Wal-Mart’s worldwide e-commerce sales grew 17 percent in the first quarter.
The initiatives started in April are about making strategic choices in two key areas: people and technology. “These are intended to improve our short- to midterm performance in the United States. As you’ll remember, we’re investing in our starting wage rates and improved store structure, including adding department managers and wage increases for most positions within our stores and clubs in the U.S.,” the ceo said. He noted pilot projects to improve its scheduling process and training, all of which are designed to “improve the customer experience and translate into higher comp-store sales over time.”
McMillon said the rollout of the changes will happen throughout the year. Further, “[a]s we improve the experience in our stores, we continue to invest to deliver a stronger mobile and e-commerce experience,” he said. The ceo also explained that the company is rolling out a more simplified checkout process on walmart.com, which will help deliver a better experience on mobile devices. “Mobile is increasingly the driver of our e-commerce business,” he said.
Greg Foran, president and ceo of Wal-Mart U.S., said, “Customers responded to the new spring and summer assortments in apparel, and continued growth in activewear and strong brands across the category, helped make customer’s assortment needs.”
He also said, “[W]e’re working toward a better customer experience in our Wal-Mart pickup program formally called Site-to-Store. The program includes improved e-mail communication and new signage package that makes it easier for customers to understand the program and a focus on a faster pickup experience in the stores. It will roll out to all stores by Oct. 1.”
As for the quarter’s performance at Wal-Mart U.S. stores, Foran said, “We grew inventory and comp sales below the rate of sales and our in-stock position continued to improve throughout the quarter.”
Looking ahead to the second quarter, Foran said he expects ‘traffic to remain strong supported by sustained low gas prices and our efforts to improve customer service in our stores,” noting that comp sales are expected to rise 1 percent on top of flat comps a year ago.
Dave Cheesewright, president and ceo of Wal-Mart International, noted that the priorities overseas have been on China, Brazil and Mexico. While the business in Mexico saw its strongest net quarterly sales growth in over two years, Cheesewright said the market conditions in Brazil worsened in the first quarter due to “continued inflationary cost pressures.” The company’s net sales in China grew 1.9 percent as comps rose 0.4 percent, helped by sales for the Chinese New Year. “While there are ongoing market headwinds from government austerity and slightly slower economic growth, we’re confident we’ll continue to deliver growth in China,” he said.
Some of that growth will come from the planned opening in China of 33 stores this year, along with a greater expansion of omnichannel platforms for online and mobile. Cheesewright said accelerating e-commerce is a strategic objective this year across its international operations.
Further, in the U.K., where the “market remained highly competitive and promotional,” its Asda Stores operation saw grocery deflation down at record levels, leading to low market growth. U.K. sales fell 2.9 percent and comps decreased 3.3 percent, Cheesewright said.