Wal-Mart Posts Flat Profit For 1st Quarter
LITTLE ROCK, Ark. — Wal-Mart Stores Inc., which posted flat first-quarter earnings Thursday, will spend another summer marketing its wares to families who want to have fun even in hard times.
The world's largest retailer plans to stick with the "staycation" theme it adopted last year, when skyrocketing fuel and food prices kept people home. Now, it's unemployment instead of inflation that's leaving people looking for something to do around the house.
Groceries account for just about half of Wal-Mart's U.S. sales, and the company has picked up market share in the recession as shoppers focus on necessities.
But as food prices moderated and consumers found their dollars going farther, some sales have crossed into discretionary items, said Vice Chairman Eduardo Castro-Wright, who runs Wal-Mart's U.S. stores. 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.
Wal-Mart is reconfiguring stores to have lower sight lines, making it easier for grocery customers to see general merchandise items they might want. The company has also held to its message of value and low prices, which Wal-Mart Chief Executive Mike 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 after taking over from Lee Scott.
Bentonville-based Wal-Mart still has challenges. The company, heavily reliant on its overseas operations, was hurt in the first quarter because of a strong dollar. Health care costs rose.
Wal-Mart shares fell 93 cents to close at $49.10 Thursday. But analysts said the company appears to be on solid footing.
While Wal-Mart says its extensive research gives it insight on broad consumer trends, executives opted not to offer details Thursday beyond saying the economic doldrums will continue for the coming months. That could play to Wal-Mart's strengths.
"You're liable to see a continuation of the 'staycation' theme that you saw last summer," said Executive Vice President and Treasurer Charles Holley. Wal-Mart focused then on families staying home, eating well, playing games and watching DVDs to have fun rather than going out to eat and to the movies.
Executives also said back-to-school promotions are expected to help second-quarter numbers. The company has seen greater returns from its seasonal promotions, which the new design brings to the front of the store.
But Wal-Mart expects overall second-quarter revenue to be hurt compared to last year, when shoppers were spending their government stimulus checks. The company expects to earn between 83 cents and 88 cents per share in its second quarter, a range that surrounds the analyst consensus of 85 cents per share.
Chief Financial Officer Tom Schoewe said the company expects exchange rates to be a challenge into the third quarter.
Wal-Mart said its first-quarter earnings of $3.02 billion, or 77 cents per share, were hurt by 4 cents per share because of currency effects. Revenue fell 0.6 percent to $93.47 billion, but would have risen 4.5 percent without the impact of the strong dollar. Nearly a quarter of Wal-Mart's sales _ 22.7 percent _ came from its international division.
The stronger dollar has been hurting many U.S.-based companies that have large overseas businesses. Most convert sales from other currencies into dollars to report their financial results. If the U.S. currency strengthens relative to others, the revenue translates into fewer dollars.
Analyst Todd Slater at Lazard Capital Markets said in a research note Thursday that he expects the foreign exchange pressure to peak in the second quarter.
Slater noted other possible risks for the company, including a further pullback in consumer spending, food price deflation and legislation that favors labor unions.
Holley said the company's health care costs as more employees signing up for benefits, which could be because spouses of Wal-Mart workers lost their jobs. Labor Department figures out Thursday showed jobless claims rose to a seasonally adjusted 637,000, from a revised 605,000 the previous week, above analysts' expectations of 610,000.
Holley noted that the improved health package that Wal-Mart now offers, after years of pressure from union-backed groups, could simply be more attractive.
He also said the company has a new scheduling system for back-of-the-house workers and better methods to keep track of what's in the stockroom. High inventory costs result when items that are hidden in the stockroom are reordered because no one could find them, Holley said.
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CHUCK BARTELS | May 14, 2009 06:08 PM EST |
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