By Sarah Nassauer
Wal-Mart did better in the first three months of the year -- but
not enough to draw attention from costly investments in wages and
e-commerce that ate into expected sales growth.
The world's largest retailer reported a slim increase in U.S.
sales and a drop in profits. That put it in the company of
department stores and other retailers whose weak results have
offered further evidence of a soft patch in the economy.
On the bright side, the 1.1% increase in comparable-store sales
in the U.S. represented the third straight quarter of growth for
Chief Executive Doug McMillon, who has focused on stopping a long
slide in the retailer's home market. Wal-Mart drew more shoppers to
its stores for the second straight quarter after a long period of
decline.
Per-ticket spending by those shoppers was flat, however, and the
sales increase was slimmer than the 1.5% analysts had expected.
Mr. McMillon acknowledged Tuesday that the company had room to
improve. "We're not where we want to be in every store," the CEO
said on an earnings call.
Wal-Mart Stores Inc. said its profit fell 7% to $3.34 billion,
hurt by the cost of raising workers' wages and building up its
online operations. Despite the gains in the U.S., overall revenue
slipped 0.1% to $114.8 billion, as the value of overseas sales was
hurt by the strong dollar to the tune of $3.3 billion, executives
said.
The company's stock fell 4.4% to $76.43 on the New York Stock
Exchange, its percentage drop in three years, wiping out more than
$11 billion in market value.
The report followed lackluster results last week from Macy's
Inc., Kohl's Corp. and J.C. Penney Co, as well a string of weak
government data on retail sales that have raised concerns about the
state of the U.S. consumer.
Investors had hoped for more reassurance that Wal-Mart's core
lower income customer is spending.
"That story line is unraveling," says Simeon Gutman, retail
analyst at Morgan Stanley. "We haven't seen a full-fledged
endorsement of the consumer."
In recent quarters, Wal-Mart executives said lower gas prices
helped boost sales as shoppers spent those savings on clothes and
electronics, but that picture has become murkier.
"We know that many of our U.S. customers are using their tax
refunds and the extra money from lower gas prices to pay down debt
or put it into savings," Mr. McMillon said in a recorded earnings
call Tuesday. "They're also using these funds for everyday
expenses."
Gasoline prices have dropped to an average of about $2.70 a
gallon around the country, higher than earlier this year but still
at the cheapest level in six years for the season, according to
auto club AAA.
Americans are continuing to spend on their homes, however. Home
Depot Inc. said Tuesday that sales rose 6.1% at stores open for
more than a year, driven by healthy,-big ticket spending by
wealthier Americans.
In a nod to the current power of wealthier consumers, Macy's
said last week it plans to add higher-end merchandise to some of
its 150 best-performing stores and may remove some clearance goods
from its top 30 locations.
Wal-Mart hopes to appeal to its core U.S. customers with a
renewed focus on low prices, tidy stores, fresher produce and
friendlier employees, especially in its home market, which accounts
for about 60% of total sales. The company raised employee minimum
wages to $9 in April and plans to make that $10 by next
February.
The raises are a tacit acknowledgment that the company had
squeezed costs to the point that it was hurting sales. The raises
are aimed in part at giving employees an incentive to keep stores
tidier and better stocked.
The company also is pouring money into its e-commerce business,
which employs thousands of people headquartered in San Bruno,
Calif., near San Francisco. Online sales rose about 17% during the
first quarter after hitting $12.2 billion last year.
For the current quarter, Wal-Mart forecast earnings of $1.06 to
$1.18 a share. Analysts polled by Thomson Reuters had forecast
$1.17 a share in earnings.
Write to Sarah Nassauer at sarah.nassauer@wsj.com
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