New York - Wal-Mart Stores’ profit and sales surpassed expectations as more people shopped at its established US stores and spent more, pushing shares up more than four percent despite ongoing internal and government probes into possible bribery.
Wal-Mart's shares jumped and briefly recovered all of the 8.2 percent plunge sustained after an April 21 New York Times report uncovered an alleged past bribery scheme in Mexico that the newspaper said Wal-Mart executives knew about.
The first-quarter results, including a 10.1 percent increase in profit, showed that Wal-Mart's US recovery was on track and efforts were progressing to cut costs and establish everyday low pricing in markets such as China.
“The real question is, would the stock be higher if it weren't for the investigation? It's very hard to know,” said Faye Landes, managing director at Consumer Edge Research.
At the same time, Wal-Mart is seen as a defensive play amid weak economic data and worries about Europe.
Wal-Mart shares could rise to $65 to $70 and perhaps in six to nine months break out of their 13-year trading range, driven by earnings growth, said Gilford Securities analyst Bernard Sosnick. The shares last traded above $70 in 1999.
A strong performance from the Walmart US unit pleased investors. Sales at Walmart US stores open at least a year rose 2.6 percent in the first quarter and should rise 1 to 3 percent in the second quarter, the company said.
The rebound in the United States follows Walmart's reversal of its inventory reduction plan after shoppers headed elsewhere to find goods not on Walmart shelves.
“The turnaround they initiated several quarters ago is starting to show some benefit, it's starting to gain traction. But at the end of the day it is still a very challenging backdrop for them,” said Walter Stackow, a senior research analyst at Manning & Napier, which owns Wal-Mart shares.
Stackow cited the financial concerns of Walmart's core customers and the competition Walmart faces from dollar stores and online retailers.
Economic problems, including joblessness, weigh on the world's largest retailer. Many of Walmart's US customers are shopping on a paycheck cycle - spending more and buying larger packages of items at the beginning of the month, then buying less-expensive items and smaller packages as money runs low later in the month.
“We have to continue to see jobs added in the economy. I think that's important across all sectors, especially retail,” Chief Financial Officer Charles Holley told reporters.
Wal-Mart's shares closed up 4.l2 percent, or $2.49, at $61.68 on the New York Stock Exchange. Thursday's intraday high of $62.50 marked the first time Wal-Mart shares have risen above the $62.45 level, where they closed just before last month's New York Times story.
Wal-Mart earned $3.74-billion, or $1.09 per share, up from $3.40-billion or 97 cents a share a year ago. An earlier Easter and warmer weather contributed to the gains, the company said.
Wal-Mart had forecast earnings per share of $1.01 to $1.06. Analysts, on average, had expected it to earn $1.04 per share, according to Thomson Reuters I/B/E/S.
Sales rose 8.6 percent to $112.27-billion, ahead of analysts' forecast of $110.54-billion.
The 2.6 percent rise in same-store sales topped the company's forecast of flat to 2 percent growth and analysts' average forecast of 1.4 percent, according to Thomson Reuters.
Walmart US same-store sales have risen for three straight quarters following nine consecutive quarterly declines. Store traffic has risen for two straight quarters after six declines.
The US unit also reported the first quarterly increase in six years in apparel sales at stores open at least a year.
For the current second quarter, Wal-Mart expects to earn $1.13 to $1.18 per share from continuing operations. Analysts have forecast a profit of $1.16 per share. - Reuters