Wal-Mart Surges After First-Quarter Profit Beats Estimates

Wal-Mart Beats Retail Slump on Sales, Profit Growth
  • Chain’s U.S. same-store sales rise faster than expected
  • Results follow disappointing numbers from Target on Wednesday

Wal-Mart Stores Inc. shares rose the most in more than seven years after first-quarter results beat analysts’ estimates, tamping down fears that the retail industry is mired in a slump.

U.S. comparable-store sales -- a key benchmark known as “comps” -- rose 1 percent in the first quarter, the Bentonville, Arkansas-based company said in a statement Thursday. Analysts predicted a gain of 0.5 percent, according to Consensus Metrix. Profit amounted to 98 cents a share, beating the 88-cent estimate of analysts.

The results from the world’s biggest retailer provide a note of optimism after weak numbers from Target Corp. and Macy’s Inc., two other retail bellwethers. Investors have grown increasingly concerned that consumers are shifting their dollars away from traditional stores, opting instead to spend their money online or on big-ticket items like cars, home improvements and travel. Wal-Mart’s bottom line also has been under pressure from higher wages and investments in its e-commerce operations.

“We’re improving our stores, adding critical capabilities and deepening relationships with customers,” Wal-Mart Chief Executive Officer Doug McMillon said on a prerecorded conference call. “We are encouraged by the Wal-Mart U.S. comp and believe it’s attributable to real improvement in our store experience.”

For a quick wrap of the analyst commentary on Wal-Mart today, click here.

The stock jumped as much as 8 percent to $68.20 in New York trading after the report was released, marking the biggest intraday gain since October 2008. It had been up 3 percent this year before the rally.

Expectations for the company had been tempered after Wal-Mart warned that sales would be relatively flat this year, in part because of the strong dollar. The retailer predicted a decline in earnings of as much as 12 percent. Chief Financial Officer Brett Biggs said on Thursday that the company wasn’t changing its full-year forecast.

Store Improvements

Wal-Mart has been focused on fixing up its 4,600 U.S. stores after years of customer complaints about out-of-stock items, poor customer service and long waits at the checkout line. The company also has raised employee pay in an effort to attract and retain better workers. And it implemented a new system to stock its shelves and increased staff at the register. Wal-Mart says those changes are now starting to pay off.

Revenue increased 0.9 percent to $115.9 billion in the period. Analysts were expecting $113.3 billion. Earnings in the second quarter will range between 95 cents and $1.08 a share, the company said.

One area of weakness was Wal-Mart’s e-commerce business. Its sales only grew 7 percent last quarter, a deceleration from previous periods. The company is trying to increase its assortment of products online -- it currently offers about 10 million -- but that takes time, McMillon said. Wal-Mart also is expanding its e-commerce grocery program, which lets customers order food online and have it delivered to their car at the store parking lot. The service is now available in 40 markets.

‘Too Slow’

“Growth here is too slow,” McMillon said about the online business. “The U.S. number is better than the global number, but neither is as high as we’d like.”

The company said all of its major international markets saw higher sales -- except for the U.K., where food prices have been falling. Sales were particularly strong in Canada and Mexico, Biggs said.

Target, in contrast, posted slower-than-expected sales growth for the first quarter on Wednesday, blaming “an increasingly volatile consumer environment.” Its shares tumbled 7.6 percent after the results were released.

Wal-Mart said it saw good sales growth in most areas of its business -- aside from electronics, which suffered from a broader decline in demand for tablets and smartphones.

Overall, the company performed well in “a tough retail environment as evidenced by soft performance from most of its peers,” Charlie O’Shea, a Moody’s Corp. analyst, said in an e-mail.

“The company’s strategy is gaining traction,” he said.

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