Wal-Mart Earnings: Flat Same-Store Sales and Lowered Forward Guidance Disappoint


Wal-Mart (NYSE: WMT  ) , the world's largest retailer, lowered its forward earnings guidance and reported lackluster quarterly results this morning, thanks in part to a decline in customer traffic in its U.S. division.

The Arkansas-based giant has struggled over the last few years to deliver the phenomenal performance that investors came to expect over its first five decades of existence.

In 2012, it was hampered by an investigation into the company's business practices in Mexico -- and specifically its use of bribes to secure ideal locations. And last year, even though it's famous for logistics, Wal-Mart's U.S. division struggled to keep the shelves at its thousands of superstores stocked.

The troubles culminated in the recent and unexpected departure of former Wal-Mart U.S. CEO Bill Simon. In his place, the company promoted Greg Foran, who previously headed its operations in Asia.

All of the turmoil, plus apparent customer dissatisfaction weighed heavily on its latest results. Since the second quarter of 2010, domestic same-store sales have dropped in 14 out of 21 quarters. In the three months ended July 31, they were flat. 

"We wanted to see stronger comps in Walmart U.S. and Sam's Club, but both reported flat comp sales," said CEO Doug McMillon in today's earnings press release. "Stronger sales in the U.S. businesses would've also helped our profit performance."

The good news was that consolidated revenue increased over the quarter, growing by 2.8% to $120.1 billion, beating analysts' projections of $119 billion. Additionally, its diluted earnings per share of $1.21 were in line with Wall Street estimates and fell within the company's own previously issued guidance, calling for a range of $1.15 to $1.25 a share. 

Most concerning, however, was Wal-Mart's decision to lower its forward earnings guidance. It had previously forecast an earnings-per-share range of $5.10 to $5.45 for the full year. It now expects the figure to be between $4.90 and $5.15.

"Our guidance includes incremental investments in e-commerce and headwinds from higher health-care costs in the U.S. than previously estimated," said CFO Charles Holley in the earnings press release. "This guidance also assumes the effective tax rate will be around 34 percent for the third quarter."

The question going forward will be whether Wal-Mart's strategy to focus on its smaller Neighborhood Market and Express formats, the former of which saw comparable sales grow during the quarter by 5.6%, will make up for the disappointing trend at its superstores. And while the jury is still out, you'd be excused for refusing to count the retailer out just yet.

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