Wal-Mart profit beats expectations; stock jumps

Thu May 19, 2016 9:35am EDT
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By Nathan Layne

(Reuters) - Wal-Mart Stores Inc (WMT.N: Quote) on Thursday reported a higher-than-expected quarterly profit as increased drug prices and solid demand for basic apparel items boosted sales, and its shares jumped more than 7 percent.

The company's performance bucked a string of weak results from competitors. On Wednesday, rival Target Corp (TGT.N: Quote), which caters to a higher-income customer than Wal-Mart, gave a cautious outlook and reported a lower-than-expected rise in quarterly sales due to unseasonable weather and soft demand.

"It looks like the middle-to-higher-income customers have cut back, but the lower-income customer is spending," said Edward Jones analyst Brian Yarbrough.

The upbeat results also suggest Wal-Mart may be benefiting from its $2.7 billion investment to increase entry-level wages and in training of its workforce. Store visits rose 1.5 percent in the first quarter ended on April 29.

"Overall a pretty strong quarter," Chief Financial Officer Brett Biggs said in an interview. “We are very pleased with the traffic increases, and I think that goes along with what we are seeing with customer experience scores that continue to improve.”

Lower utility costs resulting from warmer-than-usual winter weather also supported profitability, Wal-Mart said.

Net income attributable to Wal-Mart fell to $3.08 billion from $3.34 billion a year earlier, reflecting the costs of boosting the company's minimum wage to $10 an hour and investing in automated warehouses dedicated to filling online orders.

Earnings per share of 98 cents beat the analysts' average estimate of 88 cents, according to Thomson Reuters I/B/E/S.   Continued...

Shopping carts are seen outside a new Wal-Mart Express store in Chicago July 26, 2011. REUTERS/John Gress/Files