Story URL:
Story Retrieval Date: 4/17/2015 11:32:21 AM CST

Top Stories

Marley DelDuchetto/MEDILL

Walmart shoppers are feeling economic constraints this holiday season.

Walmart cautious about holiday outlook

by Marley DelDuchetto
Nov 15, 2012

Wal-Mart Stores Inc. reported a quarterly increase in profit but lowered its outlook for the rest of the holiday season. Executives cited continuing unemployment and volatile gas prices as reasons for the drop. The news caused Wal-Mart’s stock to plummet nearly 4 percent Thursday.

Even so, Wal-Mart fared relatively well in the third quarter. The company’s profit rose 9 percent to $3.63 billion, or $1.08 per share, in the fiscal quarter ended Oct. 31, compared with $3.33 billion, or 97 cents per share, in the year-ago period.

The showing was slightly better than the $1.07 per share expected by analysts’ surveyed by Bloomberg. Results were dragged down by $105 million in pre-tax charges related to liabilities on employment claims in Brazil and damages from Superstorm Sandy.

“We’re very pleased with our financial performance for the third quarter and the dedication and hard work of our associates serving Walmart customers and communities around the world,” said CEO Mike Duke.

Sales rose 3.4 percent to $113.2 billion from $109.5 billion in the same period last year, excluding Sam’s Club memberships. Wal-Mart’s sales, which account for nearly 10 percent of U.S. non-automotive retail spending, came in well below analysts’ target of $115 billion.

Wal-Mart Treasurer Jeff Davis said that currency exchange rate fluctuations “negatively impacted net sales by approximately $1.7 billion.” Without the currency impact, sales would have reached $114.9 billion, nearly matching expectations.

During the last 50 years, Wal-Mart has grown from one store in Rogers, Ark., to one of the biggest companies in the world. More than 10,000 retail centers and 2 million employees serve 200 million customers every week. Walmart stores generate more than $1 billion a day in revenue.

The economic bellwether’s results demonstrate how its low-income customers are continuing to suffer in the current economy and are seeking out rock-bottom prices.

"Current macroeconomic conditions continue to pressure our customers," acknowledged Charles Holley, Wal-Mart's chief financial officer. "The holiday season is predicted to be very competitive but we are well prepared to deliver on the value and low prices our customers expect."

Company executives issued fourth-quarter profit guidance that was lower than analysts were expecting. Earnings per share are now expected to be between $1.53 and $1.58. Analysts were expecting $1.59 per share. Wal-Mart also narrowed its full-year forecast to between $4.88 and $4.93; the original range was $4.83 to $4.93.

Wal-Mart said it plans to be the No. 1 holiday destination for U.S. shoppers this year. To ensure that, the company is stocking its stores three-weeks earlier than last year and increasing its advertising on TV and in social media. It also is offering a low-price guarantee program where customers can bring in a competitor’s ad with a lower price and Walmart will match it.

Wal-Mart is one of the retailers planning to open its stores on Thanksgiving night. Extended Black Friday hours will now begin at 8 p.m. Nov. 22.

“We know that one of the most important things for our customers is getting the items they want under their Christmas tree,” said Bill Simon, the CEO of Wal-Mart’s U.S. division.

U.S. Walmart stores open for more than a year reported a comparable-store sales increase of 1.5 percent, driven by back-to-school spending and the mid-September launch of a layaway program. Analysts were expecting growth of 1.8 percent.

The quarter marked the U.S. division’s fifth quarter of gains after nine consecutive quarters of losses.

“Although Walmart U.S. delivered positive same store sales for the fifth consecutive quarter, we note that the company’s U.S. experienced a modest deceleration,” said Michael Exstein of Credit Suisse.

Wal-Mart paid $1.3 billion in dividends to its shareholders last quarter. The company also repurchased approximately 16.6 million shares, spending $1.2 billion. That means Wal-Mart has bought back 71 million shares of its stock at a cost of $4.7 billion this year.

Most analysts rate Wal-Mart shares a hold or a buy. However, many have differing opinions regarding Wal-Mart’s future.

“Though we are encouraged by the scale, product and geographic diversity of Wal-Mart, a slowly recovering economy, rising costs and currency rate fluctuations keeps us on the sidelines,” said Zacks Investment Research in a research note.

Bernard Sosnick, an analyst for Gilford Securities, said Wal-Mart is a sure bet. “Bullish expectations lift Wal-Mart toward $80, with potential for $100 on the horizon,” he said in a research note.

In the first nine months, Wal-Mart’s earnings rose 8.1 percent to $11.39 billion, or $3.35 per share, from $10.54 billion, or $3.02 per share, in the comparable period of 2011. The company’s sales rose 5.4 percent to $339 billion from $321.6 billion.

Wal-Mart’s stock price dropped 5 percent in early trading Thursday after the announcement of the lowered fourth-quarter outlook. During the past 52 weeks, its shares have traded between $56.26 and $77.60. Wal-Mart stock closed Thursday at $68.70, down $2.61, or 3.66 percent.