The U.S.retail giant, Wal-Mart (WMT, Financial), reported revenue and profit numbers in the second quarter on Aug. 14 which beat Reuters’ analyst expectations but made the management lower their guidance further for the rest of the fiscal year. While reporting the earnings on Aug. 14, Wal-Mart’s CEO Doug McMillon stated – “Stronger sales in the U.S. businesses would've also helped our profit performance."
Let’s dive directly into the number crunching exercise to get to the real facts.
Revenue and profit show a thin increase, retail sales lower In U.S.
Wal-Mart posted its seventh straight quarter of decline in U.S. store traffic and expects online store sales to also dampen with time. Traffic in its U.S. stores fell 1.1% during the quarter, though the average expenditure of customers during a given shopping trip increased. Sales excluding the newly opened or closed stores in the U.S. were comparatively flat. Though there was a mild improvement after five straight quarters of decline the challenges linked to retail sales had a bearing on the overall sales.
Earnings from operations came at $1.21 per share and net income showed an uptick of 0.6% to $4.1 billion, meeting analysts’ consensus.
Consolidated net sales did show a gradual rise of 2.8% to $119.3 billion from $116.1 billion a year-ago, helped by higher sales in small format stores and also driven by online shoppers, but partially offset by flattish retail sales in the U.S. same-stores. This also included the negative impact of $696 million that came up from currency exchange rate fluctuations.
On a constant-currency basis, net sales would have risen 3.4% to $120.1 billion this quarter. The revenue did supercede analysts’ expectations of $119 billion clearly by a hair-line.
Wal-Mart has emphasized its e-commerce business which delivered double digit growth in the second quarter. The global e-commerce sales which grew 24% were particularly in the U.S., U.K., China and Brazil.
The top brass are confident of generating solid revenue from the small format sector though the recent merger of Dollar Tree (DLTR, Financial) and Family Dollar (FDO, Financial) poses a threat to its sales over the counter. But the management wants to take a cautious stand and has cut its online sales guidance to 25% from 30% estimated earlier this year.
After an extraordinarily difficult winter, it was expected that by spring or summer there would be positive news on the footfalls per store, but the retail results of the quarter are muted and American consumers have started to become cautious, concerned about the cost of living and the employment landscape.
International sales grow
In a company statement during the earnings call, CEO Doug McMillion stated, “As it relates to the positives from the quarter, I'm encouraged by the performance of our International business …and by our e-commerce growth.”
Wal-Mart International saw net sales up 3.1% to $33.9 billion. As currency rate fluctuations affected sales by $700 million, barring its impact net sales would have grown 5.3% from the year-ago period. Internationally the company recorded an 8% jump in operating income which was more than twice the rate of sales growth, increasing to $1.5 billion.
Outlook stands lowered, emphasis on e-commerce strengthened
Wal-Mart has cut its earnings forecast from $5.10-$5.45 per share to $4.90-$5.15 per share, citing investments in e-commerce and higher health care costs of employees as reasons for the lowered guidance. It is expected that health costs could grow more than $500 million for the fiscal year ending January 31.
To turn towards online sales amid weakness in the U.S. market, Wal-Mart wants to invest in e-commerce as the company has realized that the lines between digital and physical retail continues to get blurred. Hence, Wal-Mart is looking forward to investing an additional $160 million in e-commerce.
To compete better with online giants such as Amazon (AMZN, Financial), Wal-Mart has recently snapped up companies specialized in data analysis and online marketing and is trying to roll out a global technology platform. To lure more customers and to maintain its existing customer base, Wal-Mart recently launched an online price-comparison app, Savings Catcher that would allow shoppers to get back the difference they paid if they find a local competitor offering a lower discounted price for any product.
Wrapping up
Wal-Mart’s second quarter was decent, yet not very strong numbers were posted. The company needs to concentrate on online sales and find ways to advocate its retail sales which is currently facing terrible headwinds. However, as Wal-Mart’s management remains focused, it might be concluded that the top and bottom lines could remain intact in the near future, as well, for the discount chain.
