WAL-MART NET TO FALL; YULE GETS BLAME
Byline: Mark Tosh and Diane Picard
NEW YORK — After stringing together 99 consecutive quarters of record earnings, Wal-Mart Stores Inc. said Wednesday it won’t make it to 100.
Citing the harsh weather, poor sales last Christmas and the intense promotional environment, the mass discounter said it expects to report earnings of 40 to 42 cents per share for the quarter, down from 45 cents a year ago. According to the consensus on Wall Street, Wal-Mart was expected to earn 47 cents.
Wal-Mart, the world’s largest retailer, has not reported a quarterly earnings decline since it went public in 1970.
For the year, however, Wal-Mart expects profits to hit a record of $2.7 billion, or $1.18 to $1.20 per share, compared with last year’s $1.17.
“If Wal-Mart, the ultimate low-cost provider, is having these kinds of troubles, what does that say about other people?” said Robert Buchanan, an analyst at NatWest Securities. “The bottom line is that things are worse than even I thought they were, and it looks like they’re deteriorating even further.”
“It’s not a shock,” added Rick Church, an analyst at Smith Barney, “but it was a little worse than expected.”
After hitting a five-year low of 20 early in the day, Wal-Mart’s stock closed Wednesday at 20 3/8, down 2 1/8 on the New York Stock Exchange. It was the most active issue on the New York Stock Exchange with 16.5 million shares changing hands.
Analysts and the discounter attributed the earnings slowdown to several factors. Among them:
* Weaker-than-expected sales in December, including the 3.8 percent same-store sales decline at Sam’s Clubs warehouses.
* A sales mix skewed to lower margin goods like toothpaste and other commodities and consumables. Women’s apparel sales were weak in December.
* Higher operating expenses.
* Extreme weather conditions in January.
* The highly promotional retail environment, led by Kmart and other discounters trying to boost sales at the expense of gross margins.
“While fourth-quarter earnings were below plan, we are encouraged that in a difficult retail environment we should report record earnings of over $2.7 billion for the year,” David Glass, president and chief executive officer, said in a statement. Wal-Mart will report fourth-quarter results on Feb. 27.
Wal-Mart struggled through much of 1995 with lackluster same-store sales at its 430-unit Sam’s division and 2,200 discount stores. Same-store sales at the discount stores rose only 2.7 percent in December, far below the 9.7 percent gain reported in December 1994.
In addition to feeling pricing pressure from competitors like Kmart and Target, Church said Wal-Mart was hurt by weak consumer demand and a highly promotional retail environment.
“In spite of everything that Wal-Mart does that is good, they are not going to be immune to those pressures,” he said. “Consumers respond to promotions.”
Still, Church said he doesn’t expect Wal-Mart will slow its expansion this year and is “going to open 100 to 110 supercenters, and that’s not going to change.” He estimates Wal-Mart will earn $1.21 for the year ending Jan. 31, down from his earlier estimate of $1.27.
Another analyst, Terrence J. McEvoy at Philadelphia-based investment bank Janney Montgomery Scott, said Wal-Mart’s January sales also could be weak. According to Buchanan, snow and ice in Wal-Mart’s key trading areas, including the Northeast and South, “made life very difficult” for the discounter. He noted that a “very poorly merchandised Sam’s Club” also put pressure on sales.
Buchanan said that due to a “continued hostile environment” in the first quarter, he expects Wal-Mart’s earnings to be flat against last year’s at 24 cents per share, although he noted that the company is “more optimistic than that.”