Walmart’s Q2 EPS, Net Sales Rise

Wal-Mart Stores Inc. has posted net sales for the second quarter ended July 31 of $116.2 billion, an increase of 2.4 percent from last year. On a constant-currency basis, net sales would have risen 2.8 percent to $116.7 billion. Membership and other income fell 4.3 percent from last year, and total revenue came to $116.9 billion, an increase of $2.7 billion, or 2.3 percent, over the year-ago period.

Consolidated net income was $4.1 billion, a 1.3 percent rise. Diluted earnings per share (EPS) were $1.24, a 5.1 percent increase, versus $1.18 last year.

“We delivered a solid increase in earnings per share for the second quarter,” said Mike Duke, president and CEO of Bentonville, Ark.-based Walmart. “Consolidated net sales and our Walmart U.S. comp were below expectations. While the retail environment was challenging across all of our markets, the Walmart U.S. and Sam’s Club businesses improved comp sales from the first quarter, and the growth of International sales was consistent.”

Added Duke: “I’m encouraged by our position to execute in the second half of the year, particularly with the steps we’re taking to improve performance. There are areas of our business where we can do a better job, and we will. I’m confident in our associates’ abilities to deliver for our customers with EDLP and for shareholders with improved expense savings.”

The company didn’t leverage operating expenses during the second quarter, however, which it attributed to softer-than-expected sales and higher investment in key areas. “While it will be difficult, we believe the steps we’re taking to control costs, especially in International, will bring us closer to our full-year leverage goal,” noted Duke. “We will continue to invest in leverage initiatives, compliance and e-commerce as we focus on future growth.”

Net sales, including fuel, were up by 2.1 percent for Walmart U.S., 2.6 percent for Sam’s Club and 2.9 percent for Walmart International from last year, with consolidated net sales rising 2.4 percent from the year-ago period.

During the second quarter of fiscal 2013, Walmart U.S. comparable-store sales were negatively affected by lower consumer spending attributable to the payroll tax increase and lower inflation than anticipated. Comp traffic dipped 0.5 percent, while average ticket edged up 0.2 percent.

“While I’m disappointed in our comp sales decline, I’m encouraged by the improvement in traffic and comp sales as we progressed through the quarter,” said Walmart U.S. president and CEO Bill Simon.

For the 13-week period ending Oct. 25, Walmart U.S. expects comp store sales to be relatively flat. Last year, Walmart’s comps increased 1.5 percent for the comparable period. “We continue to execute on initiatives to drive our business,” added Simon. “Our strategy is sound, our pricing position is solid and our ability to leverage operating expenses is strong.”

In the second quarter, Sam’s Club comp traffic grew 2.7 percent, while ticket decreased 1 percent. “Sam’s Club generated a comp of 1.7 percent, without fuel, for the 13-week period," said Sam’s Club president and CEO Rosalind Brewer. “Sales were up, traffic continued to improve, and comp sales were within our guidance. Response to our recent membership enhancements has been favorable, resulting in solid membership income growth and positive response to our Instant Savings Book. We were pleased with our improvement in business member traffic, reversing the decrease from the prior quarter.”

Sam’s Club expects comps, excluding fuel, for the current 13-week period ending Oct. 25, to range between flat and 2 percent. In the year-ago period, comps, excluding fuel, went up 2.7 percent. “The core business at Sam’s Club is strong,” observed Brewer. “I’m confident that the steps we are executing today to strengthen our value proposition will benefit Sam’s over the long term.”

Walmart operates 10,955 stores under 69 banners in 27 countries and e-commerce websites in 10 countries.

Commenting on Walmart’s Q2 results, Stephen Springham, senior retail analyst at Planet Retail, said: “After the horror show of Q1, Walmart had so much to prove domestically in Q2. And it has again come up short. A U.S. comp store decline of 0.3 percent was below earlier management guidance of 0-2 percent, guidance that was endorsed as recently as the annual shareholder meeting in June. This marks the second quarter that U.S. comps have been both in negative territory and below guidance. Those accusing Walmart of ‘crying wolf’ in its bullishness (ourselves included) may feel vindicated.

“Although ostensibly an improvement on Q1 (when U.S. comps were down -1.4 percent), Q2 was arguably a weaker performance. Although the U.S. consumer remains challenged, the factors that derailed performance so horribly in Q1 (delays in tax refunds, poor weather and lower inflation in food) have all receded and the operating backdrop in Q2 was far more benign. One telling factor is that the company seems to have woefully underestimated the effect of income tax increases that came into force at the end of 2012 and continue to weigh heavily on Walmart’s core customer demographic.

“‘Headline’ growth of 2.9 percent (or +4.4 percent at constant currency rates) at the international division also paints a flattering picture of what lies beneath. The top-line growth figure masks a very mixed performance, but trading remains almost universally tough. Mexico, the U.K. and Canada have been previously highlighted as the three key drivers of international profitability, but all three markets are challenged -- trading has been soft in Mexico, the U.K. remains a mature and highly competitive environment, while the arrival of Target in Canada has intensified pressure on a business already struggling to achieve comp growth. There were some positives in Q2 (e.g., continued comp growth in China on the back of a prudent location planning strategy), but by and large, the International division failed to provide much comfort.

“Predictably, e-commerce was flagged as a bright spot, with year-on-year growth sustained at around the 30 percent mark. With a more coherent e-commerce strategy taking shape, investments in businesses such as Yihaodian in China are looking increasingly shrewd.”

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