February 18, 2016 / 12:21 PM / 2 years ago

Wal-Mart forecasts tepid sales growth; stock slides

The Wal-Mart company logo is seen outside a Wal-Mart Stores Inc company distribution center in Bentonville, Arkansas June 6, 2013.Rick Wilking

(Reuters) - Wal-Mart Stores Inc on Thursday reported a lower quarterly profit and gave a lackluster sales outlook as declining prices for grocery products and sluggish apparel demand took a toll, and its shares fell more than 3 percent.

Earnings at the world's largest retailer have been under pressure recently due to costs to raise entry-level wages, spruce up its stores and build out its e-commerce infrastructure as it grapples with faster-growing online rival Amazon.com Inc.

Results for the fourth quarter ended on Jan. 31 show Wal-Mart is struggling to make those investments bring significant top-line growth, but it also suffers from a stronger dollar that has been slicing into the value of revenue generated overseas.

The company said sales at U.S. stores open at least a year rose 0.6 percent from a year earlier. This was their sixth straight quarterly gain, but it missed market expectations for a rise of 1 percent.

For the current quarter, Wal-Mart said it expected a U.S. same-store sales increase of 0.5 percent, slower than the year-earlier rise of 1.1 percent.

The retailer also said it expected net sales to be flat in its new fiscal year, down from a previous forecast for 3 percent to 4 percent growth.

The tepid sales forecast is troubling because it comes despite the investments in wages and renovations, Edward Jones analyst Brian Yarbrough said. He said some rival supermarket chains have been outperforming Wal-Mart in the grocery market.

"It's the same old story," Yarbrough said. "They continue to struggle to drive traffic and sales."

LOWER RESULTS

Wal-Mart said fourth-quarter net income fell 7.9 percent to $4.57 billion, or $1.43 a diluted share.

Excluding a charge for store closings and other items, earnings of $1.49 per share exceeded the analysts' average estimate of $1.46, according to Thomson Reuters I/B/E/S.

Wal-Mart announced last month that it would close 269 stores globally.

Consolidated revenue fell 1.4 percent to $129.7 billion, but Wal-Mart said it would have increased 2.2 percent if not for the dollar's rise.

Greg Foran, head of Wal-Mart's U.S. business, said sales suffered from sluggish demand for winter clothes due to unusually warm weather that hurt most of the nation's retailers.

The sales decline also reflected an industrywide drop in prices for meat, dairy and some other products, he said, and a delay in refund checks from the U.S. Internal Revenue Service curbed customers' spending.

Foran said he was confident that various investments, such as to improve its fresh food section and expand grocery pickup, would yield results. He pointed to the $2.7 billion investment in higher employee pay, which includes a bump in the company's minimum wage to $10 an hour this month, as critical to accelerating growth.

"The labor investments that we are providing are absolutely crucial to improving the store experience and service to our customers, and I'm seeing that as I get around," Foran said on a call with reporters.

Operating income in Wal-Mart's international business fell 19 percent to $1.7 billion, reflecting the firmer dollar, 115 store closures in Latin America, and tough market conditions in China, the United Kingdom and Brazil. The company said its Mexican and Canadian businesses performed well during the quarter.

Fourth-quarter e-commerce sales rose 8 percent, excluding currency moves, continuing a deceleration from growth of 17 percent in the first quarter, 16 percent in the second and 10 percent in the third. Weakness in Brazil and other international markets partly offset a solid online performance in the United States.

Shares of Wal-Mart were down 3.4 percent at $63.89 in afternoon trading.

At Wednesday's close, the stock had been up 8 percent this year, and Edward Jones' Yarbrough said Thursday's fall probably stemmed in part from investors' cashing in on recent gains.

Reporting by Nathan Layne in Chicago and Siddarth Cavale in Bengaluru; Editing by Lisa Von Ahn

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