Wal-Mart profits disappoint investors

Wal-Mart investors spot more than one reason to sell Tuesday (Feb. 22) as the retail giant’s fourth quarter profits slid 14.7% to $5.163 billion for what is typically the busiest shopping time of the year — November, December and January. Total sales revenue topped $123 billion in the quarter, up 5.9% from a year ago.

Despite better store traffic, customers are not spending as much as investors had hoped, and rising fuel prices will likely reduce disposable income in the months ahead. The company warned investors they should expect margins to decline as it continues its low price strategy. Walmart’s core customer earns between $40,000 and $60,000 annually.

For the full year ended Jan. 31, Wal-Mart profits declined 4.2% to $15.699 billion, while revenue rose 5.9% to $443.854 billion. But a conservative guidance for fiscal 2013 also concerned investors.

On a day when the Dow Jones Industrial Averages flirted with the 13,000 level, Wal-Mart stock (NYSE: WMT) tumbled 3.9%. Shares traded around $60 at noon with heavy volume as investors cashed in profits from a 29% price rally since August.

CEO Mike Duke said Wal-Mart is pleased with its earnings performance for the full year and the recent quarter.

“Today, every segment of our business is stronger than it was a year ago, and we’re in a great position for fiscal year 2013,” he noted in the release.

Wal-Mart Stores Inc. expects to earn between $1.01 and $1.06 per share in the first quarter, compared to the 98-cent per share profit a year ago. Full year guidance was between $4.72 and $4.92 per share.

U.S. IMPROVEMENT
Walmart U.S., the retailers largest division, posted a 1.5% increase in sales at stores open at least a year. This marked the second quarter in a row Walmart U.S. same-store sales rose after nine consecutive quarterly declines. Sales were up in every category except apparel, the company said.

But the increase fell short of the 1.8% analysts predicted. Wal-Mart forecast its same-store sales range to be flat on the low end up to a 2% increase.

Net U.S. sales totaled $254.186 billion for the full year, roughly 60% of the company’s total revenue.

John Lawrence, retail analyst with Morgan Keegan, said Wal-mart’s focus to get consumers back in the stores is working. He predicts it will take a little longer for some of the company’s pricing strategies to pay off. But he believes the hard part of the equation has been solved.

GLOBAL INTENTIONS
Wal-Mart’s international portfolio posted double-digit gains in sales revenue for the quarter and the full year. Net sales totaled $125.873 billion in fiscal 2012, up 15.2%. The international business is roughly 28% of the company’s total revenue.

Looking ahead Walmart remains determined to expand its global footprint.

“Both mature and emerging markets will see strong investment this year. In Canada, over 70 new stores will be opened, while Mexico, Brazil and China will continue to account for the greatest proportion of its investment,” said Samuel Stewart, senior analyst for IGD, a global food and grocery market research firm.

Stewart said the recent Walmart stake in Yihaodian, a leading Chinese e-commerce operator, is an indication of retail giant’s affinity to drive higher online sales.

He said e-commerce is also high on Walmart’s priority list as the company wants to be a global leader in that category, a goal that is being driven by its WalmartLabs division. A number of acquisitions made in 2011 have enabled the retailer to significantly increase its capability in terms of both mobile and social commerce.

Sales Revenue
Fiscal 2012: $448.950 billion
Fiscal 2011: $421.849 billion

Net Income
Fiscal 2012: $15.699 billion
Fiscal 2011: $16.389 billion

Earnings Per Share
Fiscal 2012:$4.52
Fiscal 2011:$4.47