Tighter inventory controls helped Wal-Mart Stores Inc. earn more than Wall Street forecast in its second quarter, but the key barometer of same-stores sales fell at the world’s largest retailer — a worrisome confirmation of broad weakness in consumer spending.
Wal-Mart boosted the low end of its annual profit outlook as it accelerates cost-cutting measures, but it said the economy will remain challenging in coming months and force shoppers to keep seeking low prices and small packages. It doesn’t expect big improvement in the holiday season either.
“Overall, our customers are more disciplined in their spending,” Mike Duke, Wal-Mart’s president and chief executive, told investors during a prerecorded call Thursday. He called saving more and spending less “a new normal.”
The sobering report came as the Commerce Department said Thursday that retail sales unexpectedly fell 0.1 percent last month, underscoring worries about when the U.S. will recover from the worst recession since World War II. Economists had expected a gain of 0.7 percent.
As for the holidays, Chief Financial Officer Tom Schoewe told reporters during a conference call he’s “hopeful that it will be better than last year.”
Wal-Mart earned $3.44 billion, or 88 cents per share, in the quarter that ended July 31. That compares with $3.45 billion, or 87 cents per share, in the year-ago period. Revenue fell 1.4 percent to $100.08 billion.
Analysts surveyed by Thomson Reuters projected earnings per share of 85 cents on revenue of $102.9 billion.
For the current quarter, which ends Oct. 30, Wal-Mart expects to earn 78 cents to 82 cents per share, including a 3-cent hit from currency exchange rates, while analysts forecast profit of 80 cents per share.
Wal-Mart shares rose 64 cents to $51.15 in early morning trading, as investors appeared pleased the company was stepping up its cost cuts.
But same-store sales, or sales at stores open at least a year, slipped 1.2 percent during the period, compared with a 4.3 percent gain a year earlier, when consumers spending their government stimulus checks boosted sales.
Wal-Mart stopped its monthly report of same-store sales — which have continued weak at most chain retailers including discounters — after it announced its April results. It had forecast flat to 3 percent higher same-store sales for the quarter.
“That was a significant miss,” said Ken Perkins, president of retail consulting firm Retail Metrics. “It shows signficant weakness in the consumer.”
Perkins said there’s no incentive or ability for shoppers to increase their spending.
Schoewe noted that same-stores sales were hurt by price drops in dairy products as well as consumer electronics.
“In a sales environment more difficult than we expected, we managed our operations in a disciplined manner,” Duke said in a statement. “We are accelerating our focus on reducing our expenses.”
Wal-Mart has benefited from shoppers focusing on necessities during the recession and it has drawn more affluent shoppers away from rivals with its new focus on better brands, better service and cleaner stores. This fiscal year, the chain is remodeling 600 of its 3,600 U.S. stores at a cost of $1.6 billion to $1.7 billion and sprucing up its merchandise even more in the hope of retaining its new customers after the economy recovers.
Schoewe said early back-to-school results show shoppers are focusing on replenishing basics and fixated on “value.” But he believes Wal-Mart is picking up market share across all categories of business. He also noted shoppers are continuing spend cash and use debit cards instead of credit cards.
Wal-Mart predicts same-store sales in the current quarter will be flat to 2 percent higher than in the same period a year earlier. It raised its annual profit guidance to a range of $3.50 to $3.60 per share, from $3.45 to $3.60 per share. Analysts surveyed by Thomson Reuters predict $3.56 per share.