Wal-Mart Drops After Profit Forecast Lags Some Estimates

Wal-Mart Stores Inc. (WMT), the world’s largest retailer, dropped in New York trading after its forecast for profit this year trailed some analysts’ estimates amid slowing sales growth in the U.S.

Wal-Mart fell 3.1 percent to $72.15 at the close, the biggest decline since April 23. The shares advanced 21 percent this year.

Profit this year may be $4.83 to $4.93 a share, up from a previous forecast of $4.72 to $4.92, the Bentonville, Arkansas- based company said today in a statement. The average estimate of 28 analysts was for profit of $4.93. Third-quarter profit per share will be $1.04 to $1.09. Analysts project $1.05.

Chief Executive Officer Mike Duke has been cutting prices to lure shoppers seeking bargains amid the weakening U.S. economy. Second-quarter sales at U.S. Wal-Mart stores open at least a year gained 2.2 percent, slower than the 2.6 percent gain in the first quarter.

“The market wanted all-around perfection,” Brian Sozzi, chief equity analyst with New York-based research firm NBG Productions Inc., said in a telephone interview. “Same-store sales were up, but not at the top end of guidance. Investors also wanted more upside on earnings guidance and didn’t get it.”

Second-quarter net income rose 5.7 percent to $4.02 billion, or $1.18 a share, from $3.8 billion, or $1.09, a year earlier, Wal-Mart said. The average of 26 analysts’ estimates compiled by Bloomberg was $1.17 a share.

Photographer: Daniel Acker/Bloomberg

A Wal-Mart Stores Inc. shopping cart sits outside one of the company's stores, in Princeton, Illinois. Close

A Wal-Mart Stores Inc. shopping cart sits outside one of the company's stores, in Princeton, Illinois.

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Photographer: Daniel Acker/Bloomberg

A Wal-Mart Stores Inc. shopping cart sits outside one of the company's stores, in Princeton, Illinois.

Sales Gain

Total revenue rose 4.5 percent to $114.3 billion in the quarter. That trailed analysts’ $115.8 billion average estimates. Currency exchange rate fluctuations reduced sales by about $2.2 billion.

Duke said consumers in the U.S. and in Wal-Mart’s key international markets are still struggling and will keep shopping for the lowest prices.

“Given continuing economic pressures, we believe that our price leadership and value are growing in importance to customers across income levels,” Duke said in the statement. “Walmart’s low prices drive greater customer loyalty.”

Consumers will continue to struggle, and Wal-Mart’s focus on low prices should continue to bring in shoppers, Natalie Berg, an analyst with London research firm Planet Retail, said in a telephone interview.

Well Placed

“Wal-Mart is well placed to capitalize on cash-strapped consumers,” Berg said.

To keep investors interested in the stock, Wal-Mart will have to report stronger growth and earnings than second quarter showed, said Colin McGranahan, an analyst with Sanford C. Bernstein & Co. Inc., a New York-based research firm. McGranahan, who rates the shares “market perform,” or hold, said the stock may have peaked recently and today’s fall shows that the best is over.

“Results were good but not good enough,” McGranahan said in telephone interview. “Traffic was negative in every international region. From here, the stock isn’t going up, it’s going down.”

The company’s international operations boosted sales 6.4 percent to $32 billion, and Sam’s Club sales climbed 3.8 percent to $14.2 billion.

Wal-Mart is pulling back its expansion plans overseas as a result of an investigation into bribery allegations at its Mexican business and to improve operations in Brazil and China, Chief Financial Officer Charles Holley said on a conference call with reporters.

Delayed Openings

Wal-Mart has delayed some store openings in Mexico by 90 days because the company is strengthening the approval process, Holley said.

In China and Brazil, Wal-Mart is trying to improve operations and change its stores to sell products at the retailer’s traditional everday low pricing strategy instead of promoting temporary sales and discounts.

“We got ahead of ourselves in Brazil and China,” Holley said. “We pulled back growth to allow the teams to focus on Everyday Low Price.”

Wal-Mart didn’t provide an update on the investigations by the U.S. Department of Justice and the U.S. Securities and Exchange Commission into possible violations of the Foreign Corrupt Practices Act. The government agencies are investigating allegations that Wal-Mart systematically bribed Mexican officials so it could more quickly open stores in the country.

Mexico Probes

Federal and local government agencies in Mexico also have started investigations of these matters, and the company has said it is cooperating with those probes as well.

Several of Wal-Mart’s shareholders have filed lawsuits against the company, current and former directors and officers and past and present officers of its Walmex unit. Wal-Mart’s board audit committee is conducting a probe as well.

Maryland Representative Elijah Cummings and California Representative Henry Waxman, both Democrats, said in an Aug. 14 letter to Duke that Wal-Mart de Mexico SAB, Latin America’s largest retailer, may have engaged in money laundering and tax evasion in Mexico. The letter said the investigation is looking at five nations in addition to Mexico.

Wal-Mart said in a statement after its earnings announcement that it isn’t aware of any pending investigation into such matters by Mexican authorities and that the matter has been referred to Wal-Mart’s investigative counsel for review.

Wal-Mart has had two briefings with Congressional staff members and is “exploring ways to make additional information available,” Brooke Buchanan, a company spokeswoman, said in the e-mailed statement.

To contact the reporter on this story: David Welch in Detroit at dwelch12@bloomberg.net

To contact the editor responsible for this story: Robin Ajello at rajello@bloomberg.net

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