REUTERS – Wal-Mart Stores Inc’s(WMT.N) full-year profit may miss Wall Street expectations as growth slows in international markets, pressuring the world’s largest retailer even as its U.S. discount stores continue to rebound.
Wal-Mart, viewed as a barometer of economic activity, on Thursday said its customers are still strapped, and spend more at the beginning of the month when they get their paychecks. That “paycheck cycle” has reached beyond the United States.
“It became more pronounced across the globe,” Chief Financial Officer Charles Holley told reporters, without naming any specific markets where he sees the shift.
Wal-Mart reported higher second-quarter profit, narrowly topping analysts’ average estimate. Its shares were down 3.3 percent to $71.97 in morning trading.
The company still plans to open more stores and sees growth across its regions, but as it said earlier this year, it will slow down store openings in Brazil, China and Mexico.
In Brazil and China, where it has hundreds of stores, it wants to “let them catch their breath” and work on moving to everyday low pricing and improving profitability, Holley said.
At the same time, it is going through a slower, more complex store approval process in Mexico following allegations of bribing government officials to speed up store approvals.
PACE OF U.S. GROWTH SLOWS FROM FIRST QUARTER
Sales at Walmart U.S. stores open at least a year, or same-store sales, rose 2.2 percent in the second quarter.
While the increase topped analysts’ average estimate of 2.1 percent, according to Thomson Reuters I/B/E/S, it was just above the midpoint of the company’s 1 percent to 3 percent forecast. The pace of growth at Wal-Mart’s largest unit slowed from a 2.6 percent rise in the first quarter.
“There was not as much momentum as we thought there would be,” said John Tomlinson, senior hardline retail analyst at ITG Investment Research. “People thought that the business was gaining some steam instead of taking maybe a hair of a step back.”
The company is seeing more shoppers visit its Walmart U.S. stores, where traffic rose 0.4 percent in the second quarter, meaning roughly 80,000 additional customers visited its stores each day.
Wal-Mart said it would bring back holiday layaway in the United States this quarter. Layaway, which allows customers to keep a product on hold at the store and pay for it over time, helped boost holiday sales last year.
Walmart U.S. has been promoting its low prices with a heavy run of commercials in 25 key markets, such as a price challenge versus Supervalu Inc’s Jewel-Osco stores airing in Chicago.
Such messages are critical as shoppers continue to digest some bleak economic news. The number of Americans filing new claims for jobless benefits edged higher last week, and there is the looming possibility the government will raise taxes and cut spending next year.
The Walmart U.S. discount chain has now posted four consecutive quarters of same-store sales growth.
Still, those gains trailed results at some smaller competitors. Target Corp said second-quarter same-store sales rose 3.1 percent.
Dollar Tree Inc’s second-quarter same-store sales rose 4.5 percent, topping expectations. Sears Holdings Corp said U.S. same-store sales fell 2.9 percent at its namesake chain and 4.7 percent at the Kmart discount chain.
BRIBERY INVESTIGATION COSTS EXPECTED
Chief Executive Mike Duke said international growth has slowed. For example, a key measure of sales at British unit Asda rose less than in the first quarter.
Wal-Mart now plans to add 21 million to 23 million square feet of international store space this year, down from an earlier forecast of 30 million to 33 million.
“International has lower levels of profitability than domestic and it does take up a lot of the capital spending budget,” said Edward Jones analyst Matt Arnold. “Any slowdown in spending in international I think will be viewed, long-term, as a positive.”
The company continues to face government probes into allegations of bribery at its Mexican unit.
Wal-Mart said it spent about $34 million on advisers reviewing Foreign Corrupt Practices Act matters during the second quarter. It expects to incur $35 million to $40 million in related costs in both the third and fourth quarters.
Wal-Mart earned $1.18 per share in the second quarter, up from $1.09 a year earlier. Analysts, on average, expected $1.17, according to Thomson Reuters I/B/E/S.
Consolidated net sales rose 4.5 percent to $113.53 billion.
Wal-Mart now expects to earn $4.83 to $4.93 a share this year, versus a prior target of $4.72 to $4.92. Analysts’ average target was $4.93.
Wal-Mart forecast a third-quarter profit of $1.04 to $1.09 per share, up from 97 cents a year earlier. Analysts’ average target was $1.05.
The company forecast a 1 percent to 3 percent rise in Walmart U.S. same-store sales in the third quarter. Such sales rose 1.3 percent in the 2011 third quarter after nine consecutive quarterly declines.
(Reporting by Jessica Wohl in Chicago, additional reporting by Brad Dorfman in Chicago, Dhanya Skariachan in New York, Jason Lange in Washington and Paul Sandle in London; editing by Jeffrey Benkoe and John Wallace)