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.
Target (NYSE:TGT)
Historical Stock Chart
From Aug 2024 to Sep 2024
Target (NYSE:TGT)
Historical Stock Chart
From Sep 2023 to Sep 2024