By Sarah Nassauer 

Wal-Mart Stores Inc.'s efforts to improve its stores coupled with wage gains by its core lower-income shoppers helped power the retail giant through a quarter where many of its competitors struggled with soft demand.

The world's biggest retailer posted a surprise nearly 1% rise in quarterly revenue and predicted sales would increase in the next quarter, bucking a string of weak results from other U.S. retailers. Wal-Mart's shares jumped 9.1% to $68.92 in Thursday afternoon trading, one of the stock's largest one-day percentage gains since October 2008, according to FactSet.

Wal-Mart, which gets more than half its revenue from food and groceries, is less dependent on apparel and fashion than many of the chains like Macy's Inc. and Target Corp. that cited a pullback by U.S. shoppers last quarter. On Wednesday, Target's chief executive highlighted "an increasingly volatile consumer environment" for the company's weak results and outlook.

In contrast, at Wal-Mart there was "not a lot of variability throughout the quarter," said finance chief Brett Biggs in a conference call. "There is still a little bit of what I call an era of uncertainty with consumers in terms of how they spend their money," but wage increases and lower fuel prices are helping Wal-Mart customers, he said.

Wal-Mart's apparel business was "pretty good," this quarter, Mr. Biggs said. "Our apparel business is a little different," than many competitors because Wal-Mart focuses on affordable basics, not fashion forward clothes, he said. "There is demand for that," he said.

Pay increases among lower-income shoppers, including Wal-Mart's more than 1 million U.S. employees, are likely helping to push discount retailer sales, said Simeon Gutman, an analyst at Morgan Stanley. Lower-income consumer wages rose 4% in the first quarter, Mr. Gutman estimated.

Wal-Mart has been spending heavily to get customers back into its stores, working to better stock shelves and increase pay for its employees. It also has invested in e-commerce to try to fend of Amazon.com Inc. Wal-Mart has warned those expenses would dent profits this fiscal year. The number of people visiting Wal-Mart stores increased 1.5% in the latest quarter, but profit fell 7.8%.

"Numbers are not great by any means, but they are good compared to what expectations were," said Brian Yarbrough, retail analyst at brokerage Edward Jones. He added that expectations had come down after quarterly updates from other retailers, especially Target.

Sales at Wal-Mart's U.S. stores open at least a year rose 1% in the quarter ended April 30 -- the seventh straight quarter of gains. Total revenue was $115.9 billion, including overseas stores and the Sam's Club warehouse chain. Excluding currency swings, Wal-Mart said its global revenue rose 4%. The strong dollar and weak performance in the U.K. ate into international sales, which fell 7.2% to $28.1 billion in the quarter.

"We are encouraged by the Wal-Mart U.S. comp and believe it's attributable to real improvement in our store experience," Wal-Mart Chief Executive Doug McMillon said in a conference call. Executives predicted that U.S. same-store sales would rise about 1% in the second quarter.

Wal-Mart has worked to clear out aisles and backrooms, reducing display space to make stores more efficient. An apparent sign the plan is working, total inventory in the quarter declined 3.5%, and in-stock levels improved, the company said.

Analysts say Wal-Mart's big grocery business could shield it from some of the pressures on other brick-and-mortar retailers, as food shopping has been slower to shift online. Executives have said they are working to improve the grocery aisles, ensuring foods freshness and offering a wider selection of brands. Results Thursday showed a low-single digit decline in grocery sales.

Wal-Mart U.S. CEO Greg Foran said the retailer began to lower prices this past quarter on "key items" as part of a multibillion-dollar investment in prices, a plan flagged by the company in recent investor presentations.

One area is a sore point; lagging e-commerce sales. The company is investing billions in building new fulfillment warehouses, speeding delivery times and increasing the number of products sold on Walmart.com. But global e-commerce sales growth continued to slow, rising 7% in the first quarter, down from 8% growth in the fourth quarter and 17% growth in the year-earlier period.

It has "taken time to set the foundation for this business," Mr. Biggs said. "We do expect as a company to see more growth in this business."

Wal-Mart's launched its website more than 15 years ago but has recently focused on using its huge grocery business and store footprint to gain an edge. Wal-Mart is rolling out a mobile payment feature within its app nationally by the end of June, and stores in 40 regions will allow shoppers to order groceries online and pick up curbside at stores by the end of May, executives said Thursday.

Over all, Wal-Mart posted a first-quarter profit of $3.08 billion, or 98 cents a share, down from $3.34 billion, or $1.03 a share, a year earlier. Wal-Mart had forecast per-share earnings of between 80 cents and 95 cents. Analysts anticipated 88 cents a share.

For the current quarter, company said it expects per-share earnings of between 95 cents and $1.08. Analysts were expecting a second-quarter profit of 98 cents a share.

Write to Sarah Nassauer at sarah.nassauer@wsj.com

 

(END) Dow Jones Newswires

May 19, 2016 15:03 ET (19:03 GMT)

Copyright (c) 2016 Dow Jones & Company, Inc.
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