Wal-Mart sales miss forecast; profit up 1.3%

BENTONVILLE - Global retail giant Wal-Mart Stores Inc. on Thursday reported a second-quarter 2014 profit of $4.07 billion, up 1.3 percent from the same period last year.

That much was expected.

However, net sales of $116.2 billion, though up $2.7 billion, missed analyst estimates by $2.4 billion.

U.S. stocks as a whole fell the most since June after the release of quarterly results from Wal-Mart on Thursday and from Cisco Systems Inc. after Wednesday’s market closed. Wal-Mart is the New York Stock Exchange’s largest constituent. The Bentonville-based retailer’s stock closed at $74.41 Thursday, down $1.99 from the previous day and about $5 below its 52-week high.

Analysts called Thursday’s report uninspiring butnothing disastrous.

“I think 75 percent of the problems - or maybe even more than that - are just a tough economy and a tough consumer-spending environment for the lower-end consumers, much more so than the middle-to-high-end consumers,” said Brian Yarbrough, an equity analyst with Edward Jones in St. Louis.

“The U.S. consumer, especially in [Wal-Mart’s] demographic, is cash-strapped, doesn’t have a lot of money for things outside of the grocery area, and Wal-Mart is seeing the consequences of it,” said Patty Edwards, chief investment officer for Trutina Financial in Bellevue, Wash.

For the quarter that ended July 31, grocery sales, including food and consumables, grew by nearly $1 billion, which was still a slightlynegative comparison for the retail period.

“Our results were influenced by lower-than-anticipated inflation, even deflation in some areas, including dry grocery, frozen and snacks and beverages,” said Bill Simon, president and CEO for Wal-Mart U.S.

“Softer performance among these larger categories impacted our overall [comparable-store sales] by more than 50 basis points.” A basis point is 0.01 percent. Comparable-store sales, also known as same-store sales, are figured on stores open for at least a year.

Second-quarter earnings of $1.24 per share represented an increase of 5.1 percent over the $1.18 reported the same period the previous year. Actual earnings were a penny below what a polled consortium of analysts thought they’d be.

“We delivered a solid increase in earnings per share for the second quarter,” Wal-Mart President and Chief Executive Officer Mike Duke said in a pre-recorded call of Wal-Mart executives Thursday. He admitted that net sales and Wal-Mart’s U.S. comparable-store sales fell below expectations.

“While the retail environment was challenging across all of our markets, the Wal-Mart U.S. and Sam’s Club businesses improved [comparable-store] sales from the first quarter, and the growth of international sales was consistent,” Duke said.

Coming off two less-thanstellar quarters, and with the company expecting the third quarter to be flat, the retailer dropped its full-year profit range from an estimated range of $5.20 to $5.40 earnings per share to $5.10-$5.30 earnings per share.

Same-store U.S. sales declined 0.3 percent in the quarter, below expectations and marking the second-consecutive quarter for a decline after six quarters of growth,Barclays analyst Robert Drbul said in a research report issued Thursday.

“Several lingering headwinds, including the payroll tax increase and less grocery inflation than expected, negatively impacted the [comparable-store data],” Drbul said.

“While I’m disappointed in our [comparable-store] sales decline, I’m encouraged by the improvement in traffic and [comparable-store] sales as we progressed through the quarter,” said Simon.

Wal-Mart sales in the U.S. increased 2 percent to $68.7 billion, Sam’s Club sales increased 2.6 percent to $14.5 billion, and international sales increased 2.9 percent to $33.0 billion.

Comparable-store sales, without fuel, at Sam’s Club were up 1.7 percent during the 13-week period.

The company saw pressure in consumer spending across markets internationally during the quarter, with comparable-store sales declines in the U.K., Canada, Japan and Mexico. In the second quarter, Wal-Mart’s net sales in China grew 6.3 percent over last year and comparable-store sales growth was 2.5 percent.

That doesn’t include salesfrom the Chinese e-commerce site Yihaoudian, which saw 10 times growth in mobile sales in the first half over last year.

Yihaoudian sales are continuing to grow well in the double digits. The site is one of the fastest-growing e-commerce businesses in China.

Wal-Mart said Thursday that it expects its U.S. comparable-store sales for the 13-week period ending Oct. 25 to be relatively flat.

Despite Thursday’s results, Barclays maintained its overweight rating and sets its target stock price at $90, one of the highest among analysts covering the retailer.

“We expect Wal-Mart to continue to pursue a balanced approach toward increasing shareholder value through its sustainable long term growth in its proven business model,” Drbul said.

“We continue to be impressed with disciplined expense management and strategies in place to maintain positive comps.

Front Section, Pages 1 on 08/16/2013

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