Wal-Mart Stores Inc. reported a 10.1 percent increase in first-quarter profit that beat Wall Street estimates as its re-emphasis on low prices drove bargain-hungry U.S. shoppers into its stores. The world's largest retailer also offered an upbeat profit outlook for the current quarter, and its shares rose 4 percent.
The strong results signal a turnaround at Wal-Mart's U.S. business, which had suffered during the economic downturn as its core low-income customers were hit hard by joblessness and other challenges. Adding to that, the business, which accounts for 62 percent of Wal-Mart's total net sales, had made some mistakes in veering away from its "everyday low prices" strategy and getting rid of popular merchandise.
But the last year started re-focusing on low prices and restocking 10,000 of basic products from food to fishing gear. As a result, its namesake U.S. business turned in its best performance in three years. Customer traffic was up for the second quarter in the row. And its clothing business posted its first sales gain in six years as shoppers snapped up underwear and jeans.
Sales at Wal-Mart's U.S. division rose 5.9 percent to $66.34 billion. Revenue at stores opened at least a year — considered a key measure of a retailer's health because it excludes the impact from stores that open and close during the year — rose 2.6 percent in the division. That's above the 1.4 percent estimate from Wall Street and the third consecutive quarterly gain.
Wal-Mart's U.S. business clearly turned the corner in the first quarter, said Charles Holley, chief financial officer in a call with reporters.
"We are very pleased with our start of this year," said Holley in a call with reporters. "You are seeing momentum."
The company's U.S. business wasn't the only division that posted revenue gains. Overall, net sales excluding membership fees from Sam's Club rose 8.6 percent to $112.2 billion, beating the $110.5 billion Wall Street was expecting. Sales at Sam's Club rose 7.9 percent to $13.85 billion. And Wal-Mart's international business, which accounts for more than a quarter of net sales, posted a 15 percent increase to $32.0 billion in sales.
Wal-Mart, based in Bentonville, Ark., earned $3.74 billion, or $1.09 per share, in the quarter ended April 30. That compares with $3.39 billion, or 97 cents per share, in the year-ago period. That latest results beat the $1.04 per share analysts polled by FactSet were expecting.
Wal-Mart's shares rose $2.41 to $61.66 on the news
Despite the good showing, Wal-Mart executives cautioned that the economy is remains weak. Job security is still the No. 1 concern among Wal-Mart shoppers. Gas prices have come down, but they're still high enough to squeeze customers. And many shoppers, the company said, also continue to buy smaller packages at the end of the month when finances are very tight.
In the second quarter, Wal-Mart expects its U.S. business to post a gain in revenue at stores opened at least a year of between 1 percent and 3 percent. Wal-Mart said that it expects per-share earnings in the second quarter to be in the range of $1.13 per share to $1.18 per share. Analysts had expected $1.16 per share.
Going forward, some analysts believe Wal-Mart's business could be negatively impacted by an alleged bribery scandal at the company's Mexican division. The U.S. and Mexican governments are reportedly investigating the allegations, as is Wal-Mart. The company could face hundreds of millions of fines if it's found that it violated the Foreign Corrupt Practices Act, which forbids U.S. companies from bribing foreign officials.
A number of investors already have filed suits against top executives. And some shareholders are planning to vote against the re-election of several board members at Wal-Mart's annual shareholders meeting on June 1.
In documents filed Thursday with the Securities and Exchange Commission, Wal-Mart said that "although the company does not presently believe that these matters will have a material adverse effect on its business, given the inherent uncertainties in such situations, the company can provide no assurances that these matters will not be material to business in the future."
Holley said the investigation is "ongoing" and the company takes the allegations "seriously."