Wal-Mart Stores Inc., the world’s largest retailer, forecast fourth-quarter profit that trailed analysts’ estimates in anticipation of a competitive holiday season and after economic conditions slowed U.S. sales gains. The shares fell the most in more than six months.
Fourth-quarter profit will be $1.53 to $1.58 a share, the Bentonville, Arkansas-based company said in a statement. The average estimate of analysts surveyed by Bloomberg was $1.59.
Chief Executive Officer Mike Duke has been reducing prices to lure U.S. shoppers that are still suffering amid sluggish economic growth and 7.9 percent unemployment. Discount chains such as Dollar General Corp. and Dollar Tree Inc. have attracted some of those customers with smaller-format stores that allow for quicker trips and by adding food items.
“The low-end consumer is trying to figure out the dollars they truly have to spend” and that’s been hurting Wal-Mart’s sales, David Strasser, an analyst for Janney Montgomery Scott LLC in New York, said in an interview before the results were released. The expansion by dollar stores has also made capturing price-conscious shoppers more competitive, said Strasser, who recommends buying the shares.
Wal-Mart fell 3.7 percent to $68.67 at 9:46 a.m. in New York and earlier dropped as much as 4.9 percent for the biggest intraday decline since April 23. The shares had gained 19 percent this year through yesterday.
Third-quarter sales at U.S. Wal-Mart stores open at least a year increased 1.5 percent, trailing the 2 percent average estimate of analysts surveyed by Bloomberg and slowing from the unit’s 2.2 percent gain in the second quarter. Wal-Mart U.S. generated 60 percent of the company’s $443.9 billion in store sales last year.
Net income in the quarter ended Oct. 31 rose 9 percent to $3.64 billion, or $1.08 a share, from $3.34 billion, or 96 cents, a year earlier. Analysts projected $1.07 a share, the average of 23 estimates compiled by Bloomberg.
“Current macroeconomic conditions continue to pressure our customers,” Chief Financial Officer Charles Holley said in the statement. “The holiday season is predicted to be very competitive, but we are well prepared to deliver on the value and low prices our customers expect.”
The gain in U.S. same-store sales marked the fifth straight increase in its largest market. After revenue by that measure fell amid the recession, CEO Duke and Bill Simon, head of Wal-Mart U.S., changed course by returning thousands of items to stores that had been removed.
The retailer also has focused on lowering more prices, which has hurt profitability. The portion of Wal-Mart’s net sales remaining after subtracting the costs of good sold, narrowed to 24.46 percent in the third quarter from 24.59 percent a year earlier.
The retailer brought back its layaway program in 2011 to improve sales. This year, Wal-Mart offered it a month earlier, on Sept. 16. That move may have pulled more holiday sales into the third quarter, Natalie Berg, an analyst at researcher Planet Retail in London, wrote in a note to clients before the results.
Wal-Mart said the costs of responding to 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 at its Mexico unit as well as defending itself from lawsuits and conducting its own probe were $99 million in the nine months ended Oct. 31.
The government agencies are investigating allegations that Wal-Mart systematically bribed Mexican officials so it could open stores faster in the country. In response to the probe, Wal-Mart has spent $30 million revamping its corporate structure. The chain has combined the compliance, ethics, investigations and legal units into one group that reports to the general counsel. The retailer also created a global chief compliance officer.
Wal-Mart said today in an SEC filing that it has started inquiries of potential FCPA violations in countries including Brazil, China and India.
The company also said it had about $36 million in pretax charges for damages from superstorm Sandy, which hit the U.S. East Coast last month.