Wal-Mart Q1 Profit, Comp Sales Slip

Wal-Mart Stores's (Walmart) disappointing first quarter results sent shares of the world's largest retailer down almost 2.5 percent late last week (which bounced back slightly by 0.3 percent as of 5/16/14 at 3 p.m.) on the heels of a sagging share price that's dipped 2 percent in the past 12 months.

With profits down and sales at its U.S. stores essentially flat, Walmart followed suit with the majority of publicly traded retailers which cited the unusually harsh winter weather as playing a strong hand in its weaker-than-expected performance.

During the 13-week period, Walmart's U.S. same sales decreased 1.4 percent, while its average transaction increased 1.3 percent. E-commerce sales positively impacted comp sales by approximately 0.3 percent for the 13-week period, during which time same store sales, excluding fuel, at its warehouse format, Sam's Club, was down 0.2 percent. E-commerce sales also positively impacted comp sales by approximately 0.2 percent for the 13-week period.

"Walmart's first quarter net sales increased 0.8 percent over last year," said Doug McMillon, Walmart Stores' president/CEO. "Like other retailers in the United States, the unseasonably cold and disruptive weather negatively impacted U.S. sales and drove operating expenses higher than expected. Walmart's underlying business is solid," McMillon continued, "and I'm confident in our long-term strategies. We'll continue to invest in price and enhance our service to improve sales," he added, while affirming that the Bentonville, Ark.-based chain will "remain focused on growth across the enterprise, especially in small formats like Neighborhood Market in the U.S."

With plans to continue its robust investment in e-commerce initiatives, including the global technology platform, McMillon said, "We have the opportunity to create transformative growth through stronger e-commerce capabilities. Our investments are focused on improving customer experience and fulfillment capacity. We're working to deliver a relevant, personalized and seamless customer experience across all channels to further grow sales."

Consolidated net sales for the first quarter rang up $114.2 billion, an increase of 0.8 percent over last year, including the negative impact of approximately $1.6 billion from currency exchange rate fluctuations. Excluding currency, net sales would have increased 2.1 percent to $115.7 billion. Membership and other income increased 4.8 percent versus last year.

Consolidated net income attributable to Walmart was $3.6 billion, a decrease of 5 percent. Diluted earnings per share from Walmart's continuing operations were $1.10, or 3.5 percent below last year's $1.14. The company estimated that EPS was adversely affected by approximately $0.03, due to lower net sales and higher direct costs associated with more severe weather than last year.

'Healthcare Headwinds' in Q2 Forecast

The company offered weaker-than-expected guidance for second-quarter earnings.

"We expect second quarter fiscal year 2015 diluted earnings per share from continuing operations to be between $1.15 and $1.25. This compares to $1.24 last year," said Charles Holley, EVP/CFO. "Our guidance assumes incremental investments in e-commerce, headwinds from higher health care costs in the U.S. and increased investments in Sam's Club membership programs. We continue to expect our full-year effective tax rate to range between 32 and 34 percent. We expect our effective tax rate to be at the high end of this guidance for the second quarter."

Meanwhile, when discussing the company's comparable sales trends, Bill Simon, Walmart U.S. president and CEO, said: "Neighborhood Markets continued to deliver strong results. Comp sales increased approximately 5 percent for the quarter, and net sales have nearly doubled versus two years ago," Simon said. "We saw strength across food and health & wellness, and we're particularly pleased with our overall traffic trend. April marked the 46th consecutive month of positive comps for Neighborhood Market.

"We have solid business fundamentals," affirmed Simon. "We anticipate our recently launched initiatives, including the Walmart 2 Walmart money transfer service and the video game trade-in program, along with continued price investment, will resonate with the customer."

Wal-Mart Stores, Inc. operates 10,994 stores under 71 banners in 27 countries and e-commerce websites in 10 countries. With fiscal year 2014 sales of more than $473 billion, Walmart employs more than 2 million associates worldwide.