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Disappointing Q1 puts brakes on Walmart's surge

Published May 16, 2013 6:38 pm

Retail • Its low-income customers are struggling with tax changes.
This is an archived article that was published on sltrib.com in 2013, and information in the article may be outdated. It is provided only for personal research purposes and may not be reprinted.

New York • Despite several months of controversy over bribery allegations in Mexico and other issues, Walmart's profitable earnings and strong sales in recent quarters made it a Wall Street darling, with its stock price hitting a record high Wednesday.

On Thursday, though, the company's financial picture worsened as it reported quarterly results that missed analysts' expectations, citing factors ranging from a cold spring to late tax refunds, and the stock price began to slightlydecline.

The world's largest retailer reported that its first-quarter profit edged up just slightly, and the company struggled with a sales slump in its namesake business during the three-month period. The discounter also offered a quarterly profit outlook that came below Wall Street's projections.

It is the latest in a string of big-name, consumer companies from McDonald's to clothiers, to cite such hurdles in the first quarter of the year.

"Frankly, we had a more difficult quarter than expected," said Walmart's President and CEO Mike Duke in a pre-recorded call.

Walmart is considered an economic bellwether because the retailer accounts for nearly 10 percent of nonautomotive retail spending in the U.S. and is the nation's largest private employer. The latest results indicate that many American households with lower incomes continue to struggle, even as the job and housing markets improve.

Additionally, like many companies, Walmart said that business during the first quarter was hurt by the government's delay in processing income taxes and paying refunds. Walmart said it cashed less in income tax refunds than a year ago.

Another big hurdle for Walmart's financially strapped shoppers have been tax changes, which executives said started having more of an impact as the first quarter progressed. An increase in the payroll tax of two percentage points, which took effect Jan. 1, means that a take-home pay for a household earning $50,000 a year has been sliced by $1,000.

Such factors all helped to depress results. Walmart earned $3.78 billion, or $1.14 per share, in the quarter that ended April 30. That compares with $3.74 billion, or $1.09 per share, a year earlier. Revenue rose 1 percent to $113.43 billion. That figure excludes Sam's Club membership fees. Results fell short of Wall Street expectations for earnings of $1.15 per share on revenue of $115.78 billion.

Revenue at stores open at least year, a key measurement for retailers because it excludes the effect of stores that open or close during the year, also fell below expectations. At Sam's Club, the figure rose just 0.2 percent, held down by less traffic from business customers, bad weather and lower-than-expected inflation.

Wall Street analysts had expected its U.S. namesake business to be unchanged and were projecting a 1.2 percent rise at Sam's Clubs.

Still, Walmart said that business has picked up in May, fueled in part by warmer weather. The company expects revenue at stores opened at least a year to be up as much as 2 percent at its namesake U.S. business

Internationally, Walmart faces slower growth amid a global recession.

A bribery scandal also threatens to slow its business overseas. Allegations first surfaced a year ago that Walmart failed to notify law enforcement that company officials authorized millions of dollars in bribes in Mexico to speed up getting building permits and gain other favors. Walmart has been working with government officials in the U.S. and Mexico on that investigation.

Walmart has already slowed its expansion plans in Mexico, and last November it said it was looking into potential U.S. bribery law violations in Brazil, China and India.

Walmart said it expects earnings per share to be in the range of $1.22 to $1.27 in the current quarter. Analysts had expected $1.29 per share.

Shares fell $1.36 per share, or 1.7 percent, to close at $78.50 Thursday. That's at the high end of its 52-week range of $61.25 to $79.96.