Wal-Mart cuts annual forecast as profits miss estimates
World’s largest retailer reports 3% fall in shares as company’s profits drop to $3.4bn
Wal-Mart lowered its forecast for the year ending in January to a range of $4.40 to $4.70 from its outlook of $4.70 to $5.05 in February. The consensus was for $4.77 per share. Photograph: Saul Loeb/AFP/Getty Images
Wal-Mart Stores Inc reported weaker-than-expected quarterly earnings and lowered its annual forecast on Tuesday, citing higher costs from adding worker hours as well as weaker margins in its US pharmacy business.
Shares of the world’s largest retailer fell 3.1 per cent to $69.71 to trade at its lowest in 2-1/2 years.
Net profit attributable to the company fell to $3.48 billion, or $1.08 per share, in the second quarter ended July 31st, from $3.92 billion, or $1.21, a year earlier. Analysts, on average, expected $1.12 per share, according to Thomson Reuters I/B/E/S.
Wal-Mart lowered its forecast for the year ending in January to a range of $4.40 to $4.70 from its outlook of $4.70 to $5.05 in February. The consensus was for $4.77 per share.
Wal-Mart logged a 1.5 per cent increase in US comparable sales at stores open at least a year, raising concerns about whether it can grow revenue fast enough to compensate for increased wage and other expenses.
“Unless sales really ramp up they are going to continue to see profits pressured,” said Edward Jones analyst Brian Yarbrough. “With this new model of all these investments, I don’t know if they can even leverage expenses at a 2 or 2.5 per cent same-store sales comp.”
In February Wal-Mart had flagged it would spend $1 billion to lift workers’ pay and for training, which will weigh on earnings this year. It also warned of higher spending to boost its e-commerce infrastructure as it seeks to close the online gap with Amazon. com Inc, which recently passed the Arkansas-based retailer in market value.
But on Tuesday Wal-Mart said costs to increase worker hours beyond the February plan, as it tries to improve customer service with faster checkouts and better-stocked shelves, were denting earnings more than anticipated.
It also said reduced reimbursement rates from pharmacy benefit managers were hurting margins in its US pharmacy business and that wider healthcare insurance coverage generally had led to fewer higher-margin cash transactions on drugs.
Another problem is increasing “shrink,” a retail industry term for losses tied to various issues including theft.
In one bright spot, the company said sales at stores open more than a year in the United States increased 1.5 per cent in the 13 weeks ended July 31st from a year earlier. Analysts polled by research firm Consensus Metrix expected a 1.0 per cent rise.
Wal-Mart chief financial officer Charles Holley told an earnings conference call that while lower gasoline prices helped drive sales, the bulk of the gains were due to increased investments in its stores as well as in wages and training.
The retailer lowered its forecast for opening smaller-format stores, and now plans to open 160 to 170 Neighborhood Markets locations for the full year, down from 180 to 200. It said it was still on track to open 60 to 70 Supercenters this year.