Wal-Mart Stores lowered its 2014 profit outlook Thursday as it turns toward online sales amid weakness in its key US market, still struggling with a fragile economy. The world's largest retailer posted a slight profit rise and better-than-expected sales for the second quarter, which ended July 31.
Wal-Mart cut its 2014 earnings per share forecast to $4.90- $5.15, from the prior estimate of $5.10-5.45, citing investments in e-commerce and higher health care costs than previously anticipated. The outlook was lower than what analysts had expected. The Bentonville, Arkansas-based company reported net income of $4.09 billion in the quarter, up 0.6 percent from a year ago. Adjusted earnings per share were $1.21, matching Wall Street estimates.
Net sales beat expectations, rising 2.8 percent year-over-year to $119.33 billion. Total revenue rose 2.8 percent to $120.1 billion. Doug McMillon, Wal-Mart's president and chief executive, said the discount retailer had clocked up encouraging performances in its international business, its new small-format "Neighborhood Market" stores in the US and in e-commerce. But US comparable-store sales - sales in stores open at least a year - were flat in the last quarter.
"We wanted to see stronger comps in Walmart US and Sam's Club, but both reported flat comp sales. Stronger sales in the US businesses would've also helped our profit performance," McMillon said in a statement. Same-store customer traffic at Walmart US, the company's largest chain, fell 1.1 percent, while traffic at membership chain Sam's Club rose 0.3 percent.
For the current quarter, Wal-Mart said it expects US sales to be "relatively flat." Wal-Mart is facing a sluggish retail market in the US amid minimal wage growth and high unemployment as the economy still struggles to recover five years after exiting severe recession. Greg Foran, the head of Walmart US since early August, said that the most notable operating headwind in the second quarter came from health-care costs, which increased $180 million from a year ago, "well above our initial estimates."
Foran, who is in charge of more than 4,000 Walmart stores and 1.3 million employees, said that health-care costs were expected to grow more than $500 million for the fiscal year ending January 31. For the quarter, sales gains were made by all the company's divisions, with Walmart International pulling in the largest increase at 3.1 percent, topping Walmart US's 2.7 percent rise. Global e-commerce sales grew about 24 percent in the quarter. The company said its four most important markets - the US, Britain, China and Brazil - saw double-digit growth.
"We remain focused on price investment across all our markets and expect to continue driving improved comp performance,' said David Cheesewright, Walmart International president and CEO. "I am pleased with the trends in many of our markets, which were driven by a continued focus on being the lowest cost operator." "Our investments in e-commerce and mobile are very important, as the lines between digital and physical retail continue to blur. Our customers expect a seamless experience, and we're working to deliver that for them around the world," McMillon said.
He said the company would invest an additional $160 million in e-commerce. To lure more customers to its websites and better compete with online retail giant Amazon, Walmart recently snapped up companies specialised in data analysis and online marketing, and has begun rolling out a global technology platform. The company just launched an online price-comparison app, Savings Catcher, to allow customers to get back the difference they paid when they find a local competitor offers a lower advertised price. Shares in Dow component Wal-Mart were up 0.4 percent at $74.30 in late-morning trade on the New York Stock Exchange.