Wal-Mart cuts full-year earnings forecast

Wal-Mart cuts full-year earnings forecast
By Hal Weitzman in New York
Copyright The Financial Times Limited 2007
Published: August 14 2007 13:42 | Last updated: August 14 2007 15:46


Wal-Mart, the world’s biggest retailer, on Tuesday blamed the US housing slump and high fuel prices for disappointing second-quarter results and a cut in its full-year earnings forecast.

Earnings rose to $3.1bn, or 76 cents per share, on revenues of $93bn. That was up from earnings of $2.08bn, or 50 cents per share, on revenues of $85.43bn a year earlier, when the company had to pay to dispose of its German stores. However, before an extraordinary gain of 4 cents, earnings per share from continuing operations were 72 cents per share – below analysts’ expectations of about 76 cents.

For its third-quarter, Wal-Mart forecast earnings per share of 62-65 cents from continuing operations, while analysts had been expecting about 68 cents. For the full year, the company cut its expected earnings to $3.05-$3.13 per share from continuing operations, down from $3.15-$3.23. Analysts had been expecting about $3.16.

Lee Scott, chief executive, struck a doleful note, saying the results were “not what we expected of ourselves” and that “merchandising is not where it needs to be”.

Mr Scott said Wal-Mart’s customers were facing a range of financial difficulties. “US consumers continue to be under difficult pressure economically,” he said. “It is no secret that many customers are running out of money toward the end of the month.”

Known as “the beast of Bentonville”, after the small Arkansas city where it has its headquarters, Wal-Mart - which has 1.9m employees worldwide - is the largest private employer in the world.

Last month, the company cut prices on 16,000 items by as much as 50 per cent to boost back-to-school sales. But last week, the retailer reported same-store sales growth of 1.9 per cent for July, behind the industry average of 2.6 per cent. Wal-Mart said on Tuesday that although the lower prices attracted shoppers, they also hurt sales margins.

While Wal-Mart expansion plans within the US have often met with opposition from local communities fearful that small retailers will be forced out of business, the retailer’s attempts at international expansion have been patchy. More than one-fifth of its sales come from outside the US, mainly Canada and Mexico. But last year Wal-Mart decided to abandon Germany and South Korea; it has failed to penetrate China and India; and its stores in Japan have been loss-making for several years.

The retailer appears to have turned its back on a strategy of focusing on fashionable merchandise after sluggish sales, instead refocusing on low prices. Last month Claire Watts, executive vice-president of apparel merchandising and a driving force behind the strategy, quit the company.

The controversy surrounding the company is not only related to its plans for new stores. The retailer is facing the US’s biggest-ever biggest sex discrimination class-action lawsuit and another class-action from employees who claim they were locked inside stores after closing time to perform extra work without pay. In May, Human Rights Watch accused Wal-Mart of undermining workers’ rights to form unions.

Wal-Mart’s shares have fallen marginally by 0.02 per cent since the start of 2007, while the share price of Target, the US’s second-biggest discount retailer, has risen by 10.9 per cent since the start of the year.

The retailer registered $345bn in sales for the fiscal year ending on January 31 - 1.9 per cent up on the previous year. Same-store sales rose 2.1 per cent, the lowest figure since 1980.

By mid-morning on Tuesday, Wal-Mart shares were down 4.9 per cent at $43.90.