Wal-Mart Warns of ‘Challenging’ Outlook as Sales Slip
Life + Money

Wal-Mart Warns of ‘Challenging’ Outlook as Sales Slip

REUTERS/Joshua Lott

Wal-Mart Stores Inc posted disappointing quarterly sales on Thursday after shoppers worldwide proved cautious, prompting the discount retailer to lower its revenue and profit forecasts for the year.

"The retail environment was challenging across all of our markets," Chief Executive Officer Mike Duke said in a recording. Shares of Wal-Mart fell 2.5 percent to $74.50 in premarket trading.

Sales at stores open at least a year fell 0.3 percent at Walmart U.S, the company's biggest unit by far, while Wall Street analysts were expecting a 1 percent gain, according to Thomson Reuters I/B/E/S. Wal-Mart reported a 0.5 percent decline in the number of visits from its U.S. customers, who are still reeling from higher payroll taxes and gas prices as well as a shaky employment recovery.

The world's largest retailer expects little improvement going into the fall. It forecast flat U.S. same-store sales in the current quarter, which began on August 1 and includes the important back-to-school season.


Things were also difficult outside the United States. International sales rose 2.9 percent, but that was not enough to lift the division's operating profit. The company said it had more work to do to control costs in those markets, which include Mexico, China, India, Canada and Britain. Wal-Mart's overall revenue increased 2.4 percent to $116.2 billion in the second quarter ended on July 31, below the $118.47 billion analysts expected.

Wal-Mart now expects net sales to be up between 2 percent and 3 percent for the fiscal year, down from an earlier forecast of a rise of 5 percent to 6 percent. The retailer also cut its profit forecast by 10 cents per share, to a range of $5.10 to $5.30.

A bright spot was the company's Sam's Club chain, where same-store sales rose 1.7 percent as shoppers did not balk at an increase in membership fees in May. Still, Sam's Club's same-store sales lagged those of rival Costco Wholesale Corp. Wal-Mart gets more than half of its revenue from groceries, and the company blamed a slight drop in comparable sales in that category on lower-than-expected food inflation.

Edward Jones analyst Brian Yarbrough said Wal-Mart was struggling to keep its market share against supermarket chains as well as dollar stores.

"That low-income customer is really struggling now, and that's hitting Walmart," Yarbrough said. "Kroger is giving better deals than it did, and they're competing better against Walmart now."

Wal-Mart said it had earned $4.07 billion, or $1.24 per share, in the second quarter, compared with $4.02 billion, or $1.18 per share, a year earlier. Excluding a non-income tax item, earnings were $1.25 per share, in line with Wall Street estimates.

The results came a week after a group of U.S. retailers reported weaker-than-expected gains in July same-store sales because they had to resort to bargains to lure shoppers who remained careful in their spending.


This week, department store chains Macy's Inc, Kohl's Corp and Dillard's Inc also reported disappointing sales.

In 2011, Wal-Mart began a probe into alleged violations of the U.S. Foreign Corrupt Practices Act and whether it had handled such matters appropriately. The situation drew public attention in April 2012 when the New York Times reported that management at Wal-Mart de Mexico SAB de CV had orchestrated bribes of $24 million to help it grow quickly in the last decade and that the U.S. parent's top brass had tried to cover it up.

Wal-Mart said it had spent $82 million on the probe in the second quarter, after forecasting spending of $65 million to $70 million back in May.

This piece is by Phil Wahba from Reuters.