Slow recovery dents Walmart’s outlook

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br walmart (43911084) Bloomberg Walmart and federal authorities are investigating possible violations of the Foreign Corrupt Practices Act in the retailer's operations in Mexico, Brazil, China and India, costing the company about $43m last quarter. Photo: Bloomberg

Renee Dudley New York

WALMART Stores reported stagnant same-store sales and cut its earnings forecast for the year, hurt by higher health-care costs and slow traffic at its supercentres.

Earnings for the year would now be $4.90 (R51.98) to $5.15 a share, down from a previous range of as much as $5.45, the Arkansas-based company said yesterday. Sales at US Walmart and Sam’s Club stores open at least 12 months were little changed last quarter, which ended on August 1.

Chief executive Doug McMillon, who took the post in February, is struggling to revive US growth in the face of a slow economic recovery. The retailer has not posted a same-store sales gain for six quarters, and customers are making fewer trips to big-box retailers. Cuts in government assistance also are leaving low-income shoppers with less money to spend.

“Lower middle-income households have participated much less in the economic recovery than other groups,” Patrick McKeever, an analyst from MKM Partners in New York, said in a note before the earnings release. “About 20 percent of Walmart’s customers are on government assistance,” and a reduction in food-stamp payments was harming US sales, he said.

Walmart’s stock was little changed in early trading in New York. The shares had dropped 5.9 percent this year through Wednesday, trailing the 5.3 percent gain for the Standard & Poor’s 500 index.

In cutting its forecast, Walmart cited higher US health-care costs and increased spending in e-commerce, where it aims to challenge Amazon.com’s dominance. The company sees health-care expenses growing by more than $500 million.

Walmart and its subsidiaries employ about 2.2 million people worldwide, and the company has more than 11 000 stores.

Walmart and federal authorities are also investigating possible violations of the Foreign Corrupt Practices Act (FCPA) in the company’s operations in Mexico, Brazil, China and India.

FCPA and compliance-related costs were about $43m last quarter, with $31m going to continuing investigations and $12m going towards an effort to improve its global compliance programme.

Profit last quarter was $1.21 a share, matching the average analyst estimate. Sales rose 2.8 percent to $120.1 billion in the period, helped by e-commerce orders and the opening of new smaller-format stores.

Walmart said in February it was increasing its capital spending by an additional $600m this year to add more Neighbourhood Market and Express stores.

Those smaller-format outlets have outperformed its supercentres and Sam’s Club locations. Walmart executives said yesterday that the company planned to open about 90 Express stores this financial year.

Total revenue at Walmart’s US stores rose 2.7 percent to $70.6bn, while international sales climbed 3.1 percent to $33.9bn. Sam’s Club’s net sales gained 2.3 percent to $14.9bn.

“We wanted to see stronger comps in Walmart US and Sam’s Club,” McMillon said. “Stronger sales in the US businesses would’ve also helped our profit performance.” – Bloomberg


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