Wal-Mart Shares Surge After Profit Tops Estimates

Wal-Mart Rises Most in Three Years After Profit Tops Estimates
The Wal-Mart Stores Inc. logo is displayed on a shopping cart standing in front of a location in American Canyon, California. Photographer: David Paul Morris/Bloomberg

Wal-Mart Stores Inc., the world’s largest retailer, rose the most in more than three years after reporting first-quarter profit that topped analysts’ estimates as its low prices increased customer traffic and boosted sales.

Wal-Mart climbed 4.2 percent to $61.68 at the close in New York, the biggest gain since February 2009.

Net income in the quarter ended April 30 rose 10 percent to $3.74 billion, or $1.09 a share, from $3.4 billion, or 97 cents, a year earlier, Bentonville, Arkansas-based Wal-Mart said today in a statement. The average of 24 analysts’ estimates compiled by Bloomberg was $1.04 a share.

At a time when bribery probes in Mexico threaten growth in Wal-Mart’s international operations, Chief Executive Officer Mike Duke is trying to boost U.S. sales by stocking more items on its shelves and honoring its promise to keep prices low. The company is working with suppliers to lower costs and pass some of the savings on to consumers.

“Their investment in pricing has really paid off,” Natalie Berg, an analyst with London research firm Planet Retail, said in a telephone interview. “Traffic and basket size were both up. That’s a good sign. We’ll see continued investment in price.”

Total revenue rose 8.5 percent to $113 billion. Sales in Wal-Mart’s U.S. stores open for at least a year climbed 2.6 percent, the third straight quarterly gain after more than two years of declines.

Mexico Probes

Wal-Mart also said the U.S. Department of Justice and the U.S. Securities and Exchange Commission have informed it that they are investigating the company for possible violations of the Foreign Corrupt Practices Act and that it is cooperating with those probes. The New York Times reported last month that Wal-Mart systematically bribed Mexican officials so it could more quickly open stores in the country.

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

Several of Wal-Mart’s shareholders are suing the company, current and former directors and officers and past and present officers of its Walmex unit, the company said. Wal-Mart’s board audit committee is conducting an internal probe as well.

International Sales

Sales at Wal-Mart’s U.S. stores rose 5.9 percent to $66.3 billion. The company’s international operations boosted sales 15 percent to $32.1 billion and Sam’s Club sales climbed 7.1 percent to $12.1 billion, excluding fuel.

Wal-Mart has been working to restock shelves and add more items to boost revenue. Inventories in the quarter grew 7.2 percent from a year earlier to $41.3 billion.

“Going back to basics has worked for them,” Berg said.

Sales in Wal-Mart’s international business rose fastest in Brazil, Mexico and the U.K., Doug McMillon, the unit’s president, said in prepared remarks. Brazil sales climbed 15 percent as same-store sales in the country grew 8.6 percent, he said.

Traffic at Wal-Mart’s stores in China declined 6.5 percent. Wal-Mart had been testing three new store types in the nation and has closed all of them. The company needs to focus on improving its existing locations, McMillon said.

‘Foundational Work’

“We have some foundational work to do,” McMillon said. “We’ll still open new stores, but our primary focus is improving operational execution of our current stores’ base.”

Wal-Mart needs to build recognition of its brand name in China and get product assortments right, Chief Financial Officer Charles Holley said on a call with media. He also said Wal-Mart is working to reduce costs in preparation for converting stores in that market from a model of selling items on sales and promotions to one of offering everyday low prices as it does in the U.S.

“We have to get the infrastructure correct so we can compete effectively,” he said on the call. “To be everyday low price, you have to be everyday low cost.”

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