Wal-Mart Stores Inc., the world's largest retailer and a benchmark for the U.S. economy, posted higher first-quarter profit but yesterday said earnings may trail analysts’ estimates after record gasoline prices buffeted consumers.
Sales at stores open at least a year may be unchanged in the three months through July, the retailer said on Tuesday. Wal-Mart dropped $1.37, or 2.4 percent, to $56.65 at 4 p.m. yesterday in New York Stock Exchange composite trading.
The forecast may be further evidence that consumer demand is slowing, pushing the U.S. economy toward a recession.
Chief Executive Officer H. Lee Scott ordered discounts as deep as 30 percent to spur demand for drugs, groceries and flat-screen televisions and lure customers to Wal-Mart, which accounts for almost a tenth of spending at U.S. retailers.
“There are still uncertainties about the rest of the year,” Scott said. “The economy is playing a critical factor in 2008. Customers are focusing on food and daily-use items.”
Net income increased 6.9 percent to $3.02 billion, or 76 cents a share, from $2.83 billion, or 68 cents, a year earlier, the Bentonville, Ark.-based company said in a statement. Profit beat estimates by 1 cent. Revenue for the three months through April 30 rose 10 percent to $95.3 billion.
Retail sales in the U.S. excluding cars rose 0.5 percent in April, more than twice what economists had forecast, a Commerce Department report showed in Washington on Tuesday. Including autos, total purchases slipped 0.2 percent.
“In this environment, I don't think you’d want to go” higher with the forecast, said Joseph Feldman, managing director at Telsey Advisory Group in New York. “It makes sense you'd be cautious.”
Separately, TJX, the owner of the Marshall’s and TJ Maxx discount chains, said net income climbed 20 percent to $193.8 million as sales rose 6.2 percent to $4.36 billion. The retailer also fell in New York trading after forecasting second-quarter profit that may trail estimates.
Same-store sales at U.S. retailers will probably advance 2 percent in May as consumers spend tax rebates, the International Council of Shopping Centers said in a statement. Wal-Mart sales may climb at that pace, the retailer said May 8.
“Wal-Mart had a nice quarter,” said Michael Binger, a portfolio manager for Thrivent Financial for Lutherans, which has $73 billion in assets under management. “In reality, in this environment, it was a great quarter. I would be a buyer on this dip.”
Wal-Mart has gained 19 percent in trading this year. Sustaining that pace for all of 2008 would result in the best performance by the stock in nine years. Wal-Mart is the second- biggest gainer in the 40-company Standard & Poor's 500 Consumer Staples Index after chewing gum maker Wm. Wrigley Jr. Co., which Mars Inc. agreed to buy for $23 billion last month.
Twenty-four analysts estimated first-quarter profit at Wal-Mart of 75 cents a share. Sales rose 10 percent to $94.1 billion, slightly higher than the company's preliminary statement last week.
The retailer said last month it expected to earn 74 cents to 76 cents a share in the first quarter after marking down less merchandise for clearance sales, helping to widen profit margins. Wal-Mart had forecast 70 cents to 74 cents previously.
Wal-Mart increased traffic to its U.S. stores for the first time in more than two years as consumers sought lower prices, said Chief Financial Officer Thomas Schoewe. The additional visits boosted comparable-store sales by 2.7 percent, the best performance in eight quarters.
Wal-Mart customers spent an average 2.4 percent more per transaction, reflecting a consolidation of shopping trips.
“Clearly there is a higher stress related to higher gas prices, higher food prices and less disposable income,” Schoewe, 55, said from Bentonville. “The customer is very concerned about filling up their gas tank, so rather than coming to visit two times a week, maybe they'll visit once and load up the basket.”
Wal-Mart is in the final year of a three-year restructuring plan that's slowed the growth of U.S. stores to focus on distribution, information systems and merchandising to boost profit with fewer clearance markdowns.
A week ago, Wal-Mart expanded its $4-a-month drug offering with three-month prescriptions for $10, causing Target to respond with similar discounts.
— Bloomberg News