Tags: Wal-Mart | Profit | Sales | earnings

Strong Wal-Mart Profit Trumps Bribery Probe Concerns

Thursday, 17 May 2012 07:47 AM

Wal-Mart Stores Inc.'s quarterly profit and sales surpassed expectations on Thursday as more people shopped its established U.S. stores and spent more, pushing its shares up more than 5 percent despite ongoing probes into possible bribery.

Wal-Mart's shares have recovered all of the 8.2 percent plunge suffered after an April 21 New York Times report uncovered alleged bribes paid in Mexico and an internal investigation that was squashed by Wal-Mart executives.

"Generally things seem to be very much on track," said Faye Landes, managing director at Consumer Edge Research. "The real question is, would the stock be higher if it weren't for the investigation? It's very hard to know."

A strong performance from Walmart U.S., by far its largest unit, pleased investors. Sales at Walmart stores open at least a year rose 2.6 percent in the first quarter and should rise 1 percent to 3 percent in the second quarter, the company said.

The rebound in the United States follows Wal-Mart's reversal of its inventory reduction plan after shoppers headed elsewhere to find goods not on Wal-Mart's shelves.

"The turnaround they initiated several quarters ago is starting to show some benefit, it's starting to gain traction. But at the end of the day it is still a very challenging backdrop for them," said Walter Stackow, a senior research analyst at Manning & Napier, which owns Wal-Mart shares.

Stackow cited the economic concerns of Walmart's core customers as well as the competition Walmart faces from dollar stores and online retailers.

Economic concerns, led by joblessness, weigh on the world's largest retailer and its shoppers. Many Walmart U.S. customers are still shopping on a paycheck cycle — spending more and buying larger packages of items at the beginning of the month, and then buying less expensive items and smaller packages as money runs low later in the month.

"We have to continue to see jobs added in the economy, I think that's important across all sectors, especially retail," Chief Financial Officer Charles Holley told reporters.


Wal-Mart earned $1.09 per share from continuing operations, compared with a profit of 98 cents a year earlier. An earlier Easter and warmer weather contributed to the gains, it said.

Wal-Mart had forecast earnings per share of $1.01 to $1.06. Analysts, on average, expected it to earn $1.04 per share, according to Thomson Reuters I/B/E/S.

Sales rose 8.6 percent to $112.27 billion, ahead of analysts' forecast of $110.54 billion.

The 2.6 percent rise in same-store sales topped the company's forecast of flat to up 2 percent growth and analysts' average forecast of 1.4 percent, according to Thomson Reuters.

Walmart U.S. same-store sales have risen for three straight quarters following nine consecutive quarterly declines. Store traffic has risen for two straight quarters after six declines.

For the current second quarter, Wal-Mart expects to earn $1.13 to $1.18 per share from continuing operations. Analysts were looking for a profit of $1.16 per share.

Wal-Mart has been faced with negative comments from shareholders, employees and activists after the Times report that Wal-Mart de Mexico, or Walmex, allegedly orchestrated bribes of $24 million to help it grow quickly last decade and that Wal-Mart's top brass tried to cover it up.

Wal-Mart said on Thursday that the U.S. Department of Justice and the Securities and Exchange Commission are both investigating, as are a number of government agencies in Mexico.

It contends the bribery investigation should not have a material impact on its business, but said it "can provide no assurance that these matters will not be material to its business in the future."

It added that along with incurring costs related to the probes, lawsuits and its own review, the process may impinge on the time some executives have to devote to other matters.

Walmex sales rose 13 percent and its same-store sales in Mexico rose 5.6 percent. Operating income at the unit was flat. It opened 45 stores in Mexico during the quarter.

Holley declined to comment on Wal-Mart's prior fiscal-year forecast, which calls for earnings of $4.72 to $4.92 per share. The company is expected to update that forecast when it issues second-quarter results. Sales are still expected to rise 5 percent to 7 percent, he said.

© 2018 Thomson/Reuters. All rights reserved.

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Thursday, 17 May 2012 07:47 AM
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