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Rising Pump Prices Add to Wal-Mart Uncertainty

Tuesday, 17 May 2011 03:28 PM

 

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Rising gas prices are adding another obstacle to Wal-Mart Stores Inc.'s campaign to reverse a two-year U.S. sales slump.

Robust overseas business and expense cutting helped Wal-Mart Stores Inc.'s net income rise 3 percent in the first quarter, beating Wall Street expectations. But business at home is still soft for the world's largest retailer even as it rushes to restock shelves with groceries and other items it scrapped while trying to clean up its stores.

Wal-Mart shoppers are already strained by weak job and housing markets. Now customers are consolidating shopping trips to save money on gas, a sign they're being squeezed tighter.

U.S. Walmart stores posted their eighth straight quarter of revenue declines at stores open at least a year. That figure compares revenue with the same quarter a year earlier and excludes stores that opened or closed during the year. It's an important measure of a retailer's health.

The company also offered a cautious second-quarter earnings outlook because it's worried its low-income customers will cut spending at its stores as they pay more at the gas pump.

"We are monitoring the economic environment carefully, as significant changes in gas prices and inflation during the quarter will influence our actual performance," Bill Simon, Walmart U.S. president and CEO, said in a statement.

Wal-Mart reported net income of $3.39 billion, or 97 cents per share, in the three months ended April 30. That compares with $3.3 billion, or 87 cents per share, in the same period last year.

Revenue, excluding membership fees from Sam's Club warehouse stores, rose 4.4 percent to $103.41 billion.

Analysts expected earnings of 95 cents on revenue of $102.76 billion, according to FactSet.

Wal-Mart's US division posted a 0.3 percent drop in revenue at stores open at least a year, dragged down by a 1.1 percent drop at its namesake stores. That measure rose 4.2 percent at Sam's Clubs, which has drawn more customers because of its push to remodel stores and carry better-quality food and other merchandise.

Smaller selections and missteps on pricing have hurt Wal-Mart's U.S. business. It also faces increasing price competition from dollar chains, Amazon.com and other online retailers.

Wal-Mart is trying several strategies to bring back disaffected customers and draw new ones.

It restocked many groceries and now is bringing back general merchandise items like fishing supplies in Dallas and snow blowers in Minneapolis. The company is highlighting the returning items with flags on store shelves trumpeting "It's Back."

Wal-Mart also is hammering its return to the "Every Day Low Price" message of founder Sam Walton with a new ad campaign. And it plans to open smaller stores under the name Walmart Express.

The company also said Tuesday that it's scaling back on plans to convert discount stores to super centers that carry full lines of groceries. "We just want to make sure we have the assortments right," said Charles Holley, Wal-Mart's chief financial officer during a call with media.

In a prerecorded conference call, company officials said the U.S. business is "gaining traction" because of the measures it has taken to fix its business. However, Holley declined to give a timetable on when Wal-Mart's U.S. division would return to growth.

During the latest quarter, groceries and health and wellness items were the star performers. Simon said Walmart is seeing business in basic household items like paper goods and shampoo.

Clothing sales remain weak. The company said it hasn't been able to lure grocery customers to shop the clothing aisles.

As it restocks, Wal-Mart has been caught with rising inventory that hasn't been managed as efficiently as it should, says Wall Street Strategies analyst Brian Sozzi. He says that recent trips to the namesake stores have shown that the floors look disheveled. "Inventory is just sitting on palettes," he said.

Wal-Mart said that inventory was up 6.3 percent in the quarter compared with last year and promised investors that it would return to "normal levels" by the end of the third quarter.

Wal-Mart is also seeing more pronounced drops in buying in the few days before the end of the month when money is tight and then a big spike in spending during the first few days of the month when many shoppers get paychecks or government assistance.

Wal-Mart's international business, which produces 26 percent of company revenue, is a bright spot.

The international division's revenue rose 11.5 percent to $27.9 billion in the first quarter, led by gains in Mexico, China and Chile. Revenue grew strongly in all international markets except Japan, which was hurt by the earthquake and tsunami.

Sam's Club revenue rose 9.4 percent. It accounts for about 12 percent of company revenue. Wal-Mart's U.S. division eked out a 0.6 percent increase in total revenue because it opened more stores.

For the second quarter, Wal-Mart expects earnings per share between $1.05 per share and $1.10 per share. The estimates assume that currency exchange rates remain at current levels. Analysts forecast $1.08 per share.

Wal-Mart also predicted that revenue at stores open at least a year at its Walmart U.S. stores would be anywhere from down 1 percent to up 1 percent for the second quarter.

© Copyright 2014 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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