Wal-Mart Forecast Misses Estimates as Sales Slump Lingers

Wal-Mart Stores Inc., the world’s largest retailer, forecast second-quarter profit that missed analysts’ estimates as the company copes with slow sales in the U.S., especially at its Sam’s Club warehouse stores.

Earnings will be $1.15 to $1.25 a share this quarter, the Bentonville, Arkansas-based company said today in a statement. Analysts had projected $1.28, the average of estimates compiled by Bloomberg. Sales and profit in the fiscal first quarter, which ended April 30, also missed estimates.

Chief Executive Officer Doug McMillon, who took the post in February, has been working to revive Wal-Mart’s U.S. growth after lower food-stamp payments and struggles to keep shelves fully stocked contributed to a decline. The turnaround was hampered last quarter by slow traffic at Sam’s Club locations, as well as harsh winter weather -- something retailers such as Macy’s Inc. also blamed for hurting results.

“The three glaring negatives are the earnings miss, the weak second-quarter guidance and the same-store sales numbers at Sam’s,” said Brian Yarbrough, an analyst at Edward Jones & Co. in St. Louis who has a buy rating on the shares. “Sam’s continues to be a big disappointment.”

Wal-Mart fell 2.4 percent to $76.83 at the close in New York, marking the biggest one-day decline in more than three months. The shares have dropped 2.4 percent this year, trailing a 1.2 percent gain for the Standard & Poor’s 500 Index. Wal-Mart and its subsidiaries employ about 2.2 million people worldwide, and the company has about 11,000 stores.

Health-Care Costs

The second-quarter forecast reflects higher U.S. health-care costs and increased spending on the Sam’s Club membership program, Chief Financial Officer Charles Holley said in the statement. The company also expects its tax rate to be at the high end of a range of 32 percent to 34 percent.

First-quarter net income fell 5 percent to $3.59 billion, or $1.11 a share, from $3.78 billion, or $1.14, a year earlier. Excluding some items, profit was $1.10 a share. The average analyst estimate compiled by Bloomberg was $1.15.

The severe winter weather decreased earnings by 3 cents a share, the company said.

“Like other retailers in the United States, the unseasonably cold and disruptive weather negatively impacted U.S. sales and drove operating expenses higher than expected,” McMillon said in the statement.

While Wal-Mart isn’t alone in blaming the cold, its level of precision in quantifying the cost is unusual, Yarbrough said.

Weather Math

“You wonder how companies pull a number like this out, to define it down to the penny,” he said.

Wal-Mart and federal authorities also are investigating possible violations of the Foreign Corrupt Practices Act in the company’s operations in Mexico, Brazil, China and India. Its FCPA expenses were about $53 million last quarter.

Total revenue increased 0.8 percent to $115 billion in the quarter. Analysts had projected $116.3 billion. Sales at Wal-Mart U.S. stores open at least 12 months excluding fuel fell 0.2 percent. Analysts had expected the sales to be unchanged. Sam’s Club same-store sales fell 0.5 percent.

Kohl’s Corp., a Menomonee Falls, Wisconsin-based department store-chain, also reported lower-than-anticipated results today. The company posted 60 cents a share in first-quarter earnings, missing the 63 cents estimated by analysts. That sent the shares down 3.4 percent to $52.21.

Higher Spending

Wal-Mart said in February it was increasing its capital spending by an additional $600 million this year to add more Neighborhood Market and Express stores. Those smaller-format outlets have outperformed its supercenters and Sam’s Club locations.

“While we like the shift in focus, we’d like to see an even more aggressive approach,” Patrick McKeever, an analyst for MKM Partners, said in a note before the results were released. He has a neutral rating on the shares.

The company also is looking to e-commerce to help fuel growth. Online sales grew about 27 percent worldwide last quarter, Wal-Mart said.

“We have the opportunity to create transformative growth through stronger e-commerce capabilities,” McMillon said.

(An earlier version of this story was corrected because the total sales figure didn’t include membership revenue.)