With plenty going wrong in the global economy, Wal-Mart Stores Inc. is seeing indications that it will hang onto customers it has picked up during the recession.
The world's largest retailer reported flat earnings for the first quarter on Thursday, hurt on international transactions because of a strong dollar. The year-ago comparison was affected because there was one more day in the quarter last year. Also, with fuel prices coming back to earth, Wal-Mart has lowered prices on some food items.
Wal-Mart Vice Chairman Eduardo Castro-Wright, who runs Wal-Mart's U.S. stores, said that as food prices moderated and consumers found their dollars going farther, some sales have crossed into discretionary items. And new customers who have switched to Wal-Mart because of the economic climate are doing some of that buying.
"We're committed to retaining these new customers," Castro-Wright said in a recorded call for investors.
Even though earnings and sales were flat for the period ending April 30, Wal-Mart Chief Executive Mike Duke said the company has gained market share.
The company has held to its message of value and low prices, which Duke says is resonating with a broader customer base.
"Consumers are changing their thinking and behavior. It's a virtue to be thrifty," said Duke, who has completed his first quarter as CEO, having taken over for Lee Scott.
In a pre-market analysis, William Blair & Co. analyst Mark Miller said that Wal-Mart is picking up market share as shoppers continue to try to stretch their dollars.
Wal-Mart has performed better than competitors such as Target Corp. as it has found the right mix of merchandise and marketing to enhance its renewed focus on price. Kohl's announced Thursday that its first-quarter profits fell 11 percent and that same-store sales dropped.
Exchange rate headwinds
But the recession is affecting Wal-Mart's numbers in a variety of ways. The company expects its second-quarter revenue to be hurt because shoppers were spending their economic stimulus check at the same time a year ago.
"We expect currency exchange rates to continue to be a headwind into the third quarter," Chief Financial Officer Tom Schoewe said.
Wal-Mart shares fell 50 cents to $49.53 in morning trading. But analysts said the company appears to be on solid footing.
John R. Lawrence of Morgan Keegan Equity Research wrote in a research note that Wal-Mart is "a buying opportunity for long-term investors," and held to the firm's outperform rating. Bill Dreher Jr. at Deutsche Bank Securities Inc. maintained the firm's buy rating.
Both noted that the company's outlook includes the anticipated effect of last year's stimulus checks.
Wal-Mart's earnings of $3.02 billion, or 77 cents per share, met the expectations of analysts surveyed by Thomson Reuters, who projected 77 cents per share. The company said earnings were hurt by 4 cents per share because of currency exchange rates.
Revenue fell 0.6 percent to $93.47 billion. Without the currency impact, Wal-Mart said sales would have risen 4.5 percent to $98.31 billion. Nearly a quarter of Wal-Mart's sales for the quarter — 22.7 percent — came from its international division.
The stronger dollar has been hurting many companies that have large overseas businesses. Most U.S. companies that sell goods internationally convert sales from other currencies into dollars when they report their financial results. If the dollar strengthens relative to those currencies, the international revenue translates into fewer dollars.
Last week, Wal-Mart reported that same-store sales rose 5 percent in April, surpassing the 2.9 percent gain expected by Wall Street. The figure excludes fuel sales. In comparison, Target had a slim 0.3 percent gain. Same-store sales are sales at stores open at least a year and are considered a key indicator of a retailer's health.
The consumer spending pullback has weighed on Kohl's Corp. in its fiscal first quarter, as profit fell 11 percent on a same-store sales decline. Still, the department store operator's results were better than Wall Street expected.
The Menomonee Falls, Wis.-based company also lifted its full-year profit outlook Thursday as it continues to focus on gaining market share.