WMT Walmart Inc

By Sarah Nassauer 

Wal-Mart Stores Inc.'s efforts to improve its stores, coupled with wage gains by its core U.S. 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 an unexpected nearly 1% increase in first quarter revenue and predicted sales in existing stores would rise this quarter, bucking a string of weak results from other U.S. retailers.

Wal-Mart's shares jumped 9.6% to $69.20 at 4 p.m. in New York trading on Thursday, one of the stock's largest one-day percentage gains since October 2008, according to FactSet.

Wal-Mart has been spending heavily to draw customers to its stores, better stocking shelves and increasing pay for its employees, efforts that aided sales, executives said.

In addition, it benefited from the strength of lower-income customers and broad shifts in retail away from some products such as clothing. Wal-Mart gets more than half its U.S. revenue from food and groceries, an area that has been slow to shift online.

Its sizeable grocery sales make Wal-Mart less dependent on apparel than many chains or department stores. Macy's Inc. and Target Corp. recently cited a pullback by U.S. shoppers last quarter for disappointing results.

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 during 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.

While some clothing retailers have stumbled recently, Wal-Mart's apparel business fared well because it focused on affordable basics, not fashion-forward clothes, Mr. Biggs said. "There is demand for that," he added.

Pay increases among Wal-Mart's lower-income shoppers, are likely helping to drive sales at discount retailers, said Simeon Gutman, an analyst at Morgan Stanley. Lower-income consumer wages rose 4% in the first quarter, he estimated.

Still, Wal-Mart has warned heavy investments in stores and online sales to fend off Amazon.com Inc. would dent profits this fiscal year. The number of people visiting Wal-Mart stores rose 1.5% last 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.

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 its Sam's Club warehouse chain.

Excluding currency swings, Wal-Mart said its global revenue rose 4%. The strong dollar and a weak performance in the U.K. diminished international sales, which declined 7.2% compared with a year earlier 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 during a conference call.

Executives predicted that U.S. same-store sales would rise about 1% in the current 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.

Results on 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 remains a sore point: lagging e-commerce sales. The company is investing billions of dollars in building new fulfillment warehouses to speed delivery times and increase the number of products sold on its Walmart.com website.

Growth in its global e-commerce sales, however, 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."

Overall, Wal-Mart posted a fiscal 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, the 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 20, 2016 02:48 ET (06:48 GMT)

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