Wal-Mart Rises as Dividend Boost Eases Forecast Concerns

Wal-Mart Stores Inc. rose after fourth-quarter profit topped analysts’ estimates and the company raised its dividend, overcoming concerns that tax increases would hurt earnings this year.

The world’s largest retailer rose 1.5 percent to $70.26 at the close in New York. The Bentonville, Arkansas-based company’s shares have gained 3 percent this year, compared with a 5.4 percent increase for the Standard & Poor’s 500 Index.

Chief Executive Officer Mike Duke is working to keep prices low amid delayed refunds and a 2 percentage-point increase in Social Security taxes. While the higher tax bite hurt Wal-Mart’s customers, the retailer is gaining market share, according to the minutes of an officers meeting obtained by Bloomberg. The company today raised its annual dividend 18 percent to $1.88 a share to return cash to investors.

The dividend increase “signals the strong cash flow nature of the business, management’s confidence in the business and their willingness to enhance shareholder value,” Brian Yarbrough, an analyst at Edward Jones & Co. in St. Louis, said today in an e-mail. Yarbrough had forecast a 12 percent increase in the dividend.

Fourth-quarter net income increased to $5.61 billion, or $1.67 a share, from $5.16 billion, or $1.50, a year earlier, the company said today in a statement. The average of 22 analysts’ estimates compiled by Bloomberg was $1.57.

Wal-Mart’s free cash flow, which it defines as net cash from operating activities minus payments for property and equipment, rose 19 percent to $12.7 billion last year.

Forecasts Trail

The profit results and dividend increase helped assuage concern over first-quarter and full-year forecasts that trailed some analysts’ estimates.

Earnings per share in the current quarter will be $1.11 to $1.16, Wal-Mart said today. Analysts projected $1.19, the average of 18 estimates compiled by Bloomberg. Profit in the year ending January 2014 will be $5.20 to $5.40 a share, Wal-Mart said. The average of 25 analysts’ estimates compiled by Bloomberg was $5.39 a share, while the highest projection in the survey was $5.57.

The company, which is being investigated for potential violations of the Foreign Corrupt Practices Act, said costs associated with the probes and compliance matters would be as much as $45 million in the current quarter.

The shares fell as much as 1.1 percent in early trading before rebounding. The stock closed near its closing price of $70.82 on Feb. 14, the day before Bloomberg News reported on executives’ e-mails that showed the delayed refunds and tax increases had resulted in a dismal start to February sales.

Sales Forecast

Comparable-store sales in the 13 weeks ending April 26 are projected to be little changed because of slower sales in the first few weeks of the first quarter, Bill Simon, Wal-Mart U.S. president and chief executive officer, said in today’s statement.

“February sales started slower than planned, due in large part, to the delay in income tax refunds,” Simon said. “We continue to monitor economic conditions that can impact our sales, such as rising fuel prices, changes in inflation and the payroll tax increase.”

About $19.7 billion more in tax refunds had been delivered to consumers by this time last year, according to an analysis prepared by Wal-Mart’s Global Customer Insights & Analytics division that was attached to a Wal-Mart executive’s e-mail on Feb. 12.

Cut Spending

The tax increase that took effect this year may cause seven out of 10 Americans to curtail spending, especially on big-ticket items such as cars, according to a survey the National Retail Federation released today.

About 73 percent of consumers said their spending plans are taking a hit, the Washington-based trade group said, citing a survey of 5,185 people conducted by BIGinsight from Feb. 5 to Feb. 13. More than a third said they’ll reduce how much they dine out and 25 percent said they plan to cut back on small luxuries such as manicures and trips to coffee shops.

U.S. households in the bottom 40 percent by income spend more than 100 percent of their after-tax income, and the next 20 percent up spend more than 90 percent of their take-home pay, David Strasser, an analyst at Janney Montgomery Scott LLC in New York, said in a Feb. 11 note.

“The increase in the payroll tax will force these consumers to spend less,” Strasser said. It also may prompt other shoppers to migrate to Wal-Mart because of its lower prices, he said.