Wal-Mart earnings rise 4.6%

With same-store sales slip, analyst calls quarter ‘ho-hum’

Friday, May 17, 2013

BENTONVILLE - Wal-Mart Stores Inc. reported lackluster first-quarter earnings per share of $1.14 Thursday, blaming the outcome on a longer-than-usual winter and a delay in income tax return checks being issued in the critical first part of the quarter. Reversal of the payroll tax cut played a part as well, officials said.

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Arkansas Democrat-Gazette/ Dusty Higgins

Wal-Mart hopes that consumers cashing tax-refund checks at its stores will spend some of that money on the way out.

Earnings per share came in a penny below analysts’ predictions but up 4.6 percent over the $1.09 reported for the same period a year ago. Still, same-store sales for Wal-Mart U.S., the company’s bread and butter, dropped 1.4 percent. It was the measure’s first decline in the past eight quarters.

Same-stores sales is a metric comparing the sales at stores open at least a year, a key measure in retail success, as numbers can be skewed by the number of stores that opened and closed in the past year.

Revenue for the company was $114.2 billion, up 1 percent over the $113 billion for the same period last year. Consolidated net sales reached $113.4 billion, up $1.2 billion, or 1 percent over the same period last year. Wal-Mart U.S. and Sam’s Club grew operating income by 5.9 percent and 7.4 percent, respectively.

Brian P. Yarbrough, an analyst with Edward D. Jones & Co. L.P., described the overall quarter and guidance as “ho hum.”

“I do think longer-term they’ll continue to do a pretty good job with the Wal-Mart U.S. division,” Yarbrough said. “Let’s be honest - that’s the majority of the profit, so that’s really the most important part there.”

Wal-Mart and Sam’s Club leveraged their expenses, which means they grew their expenses at a slower pace than sales, which the company considers important to its business model, Wal-Mart’s chief financial officer, Charles Holley, said.

Wal-Mart International reported revenue of $33 billion, about a 2.9 percent increase - “still softer than what we would have expected, but I think that we see some softness in all the markets across the globe,” Holley said. The company gained market share in most of its international markets, he said.

The company’s total corporate and support expenses increased by roughly $200 million, or 44.4 percent, over the quarter, reported Jeff Davis, Wal-Mart executive vice president-treasurer. Core corporate expenses increased 37.2 percent, including $73 million related to the Foreign Corrupt Practices Act.

The majority of costs incurred, about $44 million, were related to ongoing inquiries and investigations into Wal-Mart’s purported violations of the federal anti-bribery law in Mexico, China, India and Brazil, some of the retailer’s most promising international markets. About $29 million was spent on global compliance review and related organizational changes, Davis said Thursday.

The company projects the second quarter’s expenses related to the anti-bribery law to be in the same ballpark.

At home, employment remains customers’ primary concern, Holley said.

“Our consumer is still stretched,” he said.

University of California-Berkeley economist Sylvia Allegretto said that Wal-Mart ignores its role in the plight of the low-income consumer.

“Wal-Mart has reported weak sales over the last several quarters which they attribute to the prolonged difficult economic times faced by many workers - especially low wage workers,” Allegretto said. “Four years into this ‘recovery,’ the undercurrents from the great recession still have a hold on many workers and their families as they struggle to make ends meet. Economic growth remains tepid, unemployment is far too high, and wages and family incomes stagnate. But in reality, even before the crisis that has played out over the last five years, many of our workers have fallen further and further behind even during the so-called good times.”

The real story is expected to be told in the second quarter, which Holley described “off to a healthy start.” The company expects second quarter earnings per share to come in between $1.22 and $1.27, compared with $1.18 for the same period a year ago. Wal-Mart U.S. and Sam’s Club, excluding fuel sales, are expected to increase same-store sales for the second quarter of the year. Wal-Mart U.S. could be flat to 2 percent up; Sam’s Club could rise between 1 percent and 3 percent, according to a release from the company.

If the second quarter’s fiscal picture doesn’t improve as anticipated, Yarbrough said, there may be a more serious dilemma, such as a consumer-spending problem.

Wal-Mart’s stock price edged upward after the market opened, then traded steadily throughout the rest of the day Thursday, closing down 1.7 percent at $78.50.

Business, Pages 27 on 05/17/2013