Bloomberg News

Wal-Mart Forecast Trails Estimates as Economy Hurts Sales (4)

February 20, 2014

Wal-Mart Store in Los Angeles

Fourth-quarter net income fell 21 percent to $4.43 billion, or $1.36 a share, from $5.61 billion, or $1.67, a year earlier, Wal-Mart said today. Photographer: Patrick T. Fallon/Bloomberg

Wal-Mart Stores Inc. (WMT:US), the world’s largest retailer, forecast profit this year that trailed analysts’ estimates (WMT:US) as the sluggish U.S. economy and government benefit cuts threaten to restrain sales.

Profit per share in the year through January 2015 will be $5.10 to $5.45, the Bentonville, Arkansas-based company said today in a statement. The average of 28 analysts’ estimates compiled by Bloomberg was $5.55 a share.

Chief Executive Officer Doug McMillon, who took the post earlier this month, is accelerating the expansion of Wal-Mart’s smaller-format locations as lower food-stamp payments, higher taxes and struggles to keep shelves fully stocked weigh on sales. The economic trends, as well as higher health-care costs, will continue to hurt the domestic business, Chief Financial Officer Charles Holley said today.

“They continue to be pressured by the low-income consumer,” Brian Yarbrough, an analyst at Edward Jones & Co. in St. Louis, said today in an interview. “I don’t see that changing.”

He recommends buying the shares.

Wal-Mart fell 1.8 percent to $73.52 at the close in New York. The shares have dropped 6.6 percent this year, compared with a 0.5 percent decline for the Standard & Poor’s 500 Index.

Fourth-Quarter Profit

Fourth-quarter net income (WMT:US) fell 21 percent to $4.43 billion, or $1.36 a share, from $5.61 billion, or $1.67, a year earlier, the company said today. Excluding some items, profit was $1.60 a share. The average of 22 analysts’ estimates compiled by Bloomberg was $1.59.

Revenue increased 1.5 percent to $129.7 billion in the quarter ended Jan. 31. Analysts projected $130.2 billion. Sales at Wal-Mart U.S. stores open at least 12 months excluding fuel fell 0.4 percent.

Wal-Mart increased its dividend 2.1 percent to $1.92 a share for its fiscal 2015. The first quarterly payout will be on April 1 to shareholders of record as of march 11.

Earnings per share in the current quarter will be $1.10 to $1.20, Wal-Mart said. Analysts projected $1.24, the average of 20 estimates compiled by Bloomberg.

U.S. comparable-store sales have fallen in the first two weeks of February because of winter storms that closed more than 200 stores at their peak, Bill Simon, Wal-Mart U.S. CEO, said in the statement.

Faster Expansion

Wal-Mart will speed up the expansion of its smaller-format Neighborhood Market and Walmart Express stores this year, opening 270 to 300 of the locations this year, almost doubling its fleet, Simon said.

The faster growth will boost capital spending to $12.4 billion to $13.4 billion for the year, $600 million more than the company previously projected, Wal-Mart said.

“They’re spending on their small-format markets, which have had very good returns,” Yarbrough said. “Still, in the grand scheme of things, they’ve got to get core Wal-Mart and Sam’s turned around. McMillon’s got some work ahead of him.”

Fourth-quarter sales in Wal-Mart’s international (WMT:US) division decreased 0.4 percent to $37.7 billion. Excluding the effect of foreign-currency exchange-rate fluctuations, sales would have risen 4.3 percent to $39.5 billion.

The company has been working to reintroduce its everyday low price strategy in Brazil and China after struggling to find strong sales growth in both markets. Wal-Mart said in October that it would close about 50 stores in those countries. At the time, the company also said that it plans to add as many as 110 stores over three years in China.

Brazil Costs

Wal-Mart said last month that higher-than-projected costs in Brazil would contribute to fourth-quarter profit that was at or below the low end of the company’s forecast.

The U.S. Department of Justice and the U.S. Securities and Exchange Commission are investigating allegations that Wal-Mart systematically bribed Mexican officials so it could more quickly open stores in the country. Federal and local government agencies in Mexico also are involved in investigations. Wal-Mart has said it also has started inquiries into potential violations of the Foreign Corrupt Practices Act in Brazil, India and China.

The company said today that expenses related to its FCPA probe and compliance matters would be about $200 million to $240 million for the year.

Fourth-quarter sales in Wal-Mart’s Sam’s Club warehouse division rose 1.3 percent to $14.7 billion.

To contact the reporter on this story: Renee Dudley in New York at rdudley6@bloomberg.net

To contact the editor responsible for this story: Nick Turner at nturner7@bloomberg.net


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