Wal-Mart’s profit falls 26 percent
Wal-Mart Stores Inc. posted its first profit decline in a decade Tuesday as the world’s largest retailer was forced to pay a hefty price for withdrawing from Germany, selling its stores there at a loss to a rival.
Chief Executive Lee Scott also said sales at Wal-Mart’s U.S. stores were disappointing as high gas and energy prices hit the pocketbooks of customers.
Results were still in line with expectations and the company reiterated its guidance for the year.
For the quarter ended July 31, the company posted net income of $2.08 billion, or 50 cents per share, down from $2.81 billion, or 67 cents per share, a year ago. That includes an $863 million charge related to the sale of its German stores to Metro AG.
The last time Wal-Mart saw quarterly profit fall was in 1996.
Wal-Mart last month said it was pulling out of Germany after racking up losses since it started there in 1998. The announcement came two months after leaving South Korea in what analysts welcomed as a move to focus resources on expanding in more profitable markets like China and Latin America.
Excluding South Korean and German stores, the sales of which are both pending, Wal-Mart’s income from continuing operations grew 5 percent to $2.98 billion, or 72 cents per share, from $2.85 billion, or 68 cents per share, a year ago.
Wal-Mart’s international division, which still includes 13 countries in Asia, Latin America and Britain as its only European market, outpaced the larger U.S. business. International operating profit rose 25 percent to $997 million compared with $4.159 billion, an increase of 4.2 percent, for U.S. Wal-Mart stores.
Sam’s Club operating income rose 8.4 percent to $402 million.
The earnings results were in line with Wall Street expectations for a profit of 72 cents per share, though revenue came in below the $86.24 billion consensus estimate.
Revenue totaled $85.43 billion, an increase of 11.4 percent from the $76.69 billion posted a year ago.
Chief Executive Lee Scott said high gas and energy prices continued to affect Wal-Mart’s U.S. customers and its own costs of doing business.
Customers are making fewer trips to the stores in order to save gas, but on average, they’re buying larger amounts each time, he said.
“In the United States, customers tell us they are most concerned about gas prices,” Scott said in a prerecorded message. “This has been consistent every month this quarter.”
Scott said he was “quite honestly disappointed by the sales performance of Wal-Mart U.S.”
Sales at stores open at least a year — a key retail measure — were up 1.5 percent at Wal-Mart U.S. stores and 2.6 percent at Sam’s Clubs.
Rival Target last week said its sales at stores open at least a year rose 4.6 percent for the quarter.
Wal-Mart’s domestic profit margins are also under pressure from factors including higher transportation costs and more sales of lower-margin products, Chief Financial Officer Tom Schoewe said.
Food sales grew faster than general merchandise, he said. That pressured margins because groceries are less profitable than items like apparel, home furnishings or electronics.