Wal-Mart Stores Inc. reported a 5.7 per cent increase in second-quarter net income and raised its outlook for the full year as the world's largest retailer continued to woo back frugal shoppers by re-emphasizing it has the lowest prices on everything from clothes to electronics.
But Wal-Mart is seeing its momentum slow down amid a tough economic climate. Its total revenue came in short of Wall Street estimates, and the discounter is delaying store expansion plans in Mexico, its largest international division, as it deals with bribery charges there. It is also scaling back store growth plans in China and Brazil.
Investors, who had sent the stock up 25 per cent since mid-May, pushed shares down more than three per cent on the news.
Wal-Mart is considered an economic bellwether because the retailer accounts for nearly 10 per cent of non-automotive retail spending in the U.S. The company, based in Bentonville, Arkansas, said its customers are still being squeezed by economic problems in the U.S. and abroad. In the U.S., Wal-Mart's low-income shoppers are still having trouble stretching their dollars to the next payday and financial duress escalated overseas in the latest quarter. The company said it was helped by its focus on low prices.
"I don't think the economy is helping us," Charles Holley, Wal-Mart's chief financial officer told reporters in a conference call. "Our customer is still very concerned about employment."
Wal-Mart's results offer optimism that the company's namesake U.S. business has turned a corner. Wal-Mart, which thrived during the U.S. recession as more well-off people started shopping at its stores, had begun to struggle as the retailer's core low-income customers were hit hard by unemployment and other challenges in a slow economic recovery.
Adding to that, Wal-Mart's U.S. stores, which account for 60 per cent of the company's revenue, had turned off shoppers by veering away from its "everyday low prices" strategy and focusing more on temporarily slashing prices on selected items. It also got rid of popular merchandise in an effort to declutter the stores.
Last year, Wal-Mart began adding back 10,000 products and refocused on keeping prices low throughout the store, backing the strategy with TV campaigns. It has done that by cutting expenses and passing some of the savings on to customers. As a result, revenue at Wal-Mart's U.S. division rose 3.8 per cent to $67.35 billion US in the latest quarter.
Revenue at stores open at least a year - considered a key measure of a retailer's health because it excludes the impact from stores that open and close during the year - rose 2.2 per cent in the division, excluding fuel. The figure, which was slightly above the 2.1 per cent Wall Street estimate, marks the fourth consecutive quarterly gain for the division after it experienced nine straight quarters of declines. However, the pace was slower than the 2.6 per cent gain in the company's first quarter.
Customer traffic increased for the third straight quarter, too. The 0.4 per cent increase translated to serving another 80,000 additional customers every day during the latest quarter, the company said. It still trailed the 1.1 per cent pace in the previous period.
Wal-Mart enjoyed sales gains in nearly every merchandise category except for consumer electronics, which continues to post declines because of deflationary pressures in gadgets. Wal-Mart's return to clothing basics like underwear, jeans and socks continues to pay off. So far this season, key back-to-school clothing categories have enjoyed a seven per cent sales increase.
For the overall U.S. business, revenue at stores open at least a year rose 2.5 per cent, including a 4.7 per cent increase at the company Sam's Club warehouses.
Wal-Mart's international business, which produces more than a quarter of its revenue, has remained strong. The company's international sector increased 6.4 per cent to $32.01 billion in the quarter.
