Sales soft but earnings solid at Walmart

BENTONVILLE, Ark. Walmart produced second-quarter earnings per share of 88 cents that exceeded analysts’ estimates and were at the high end of the company’s guidance despite weaker-than-expected same-store sales, which declined 1.2% at U.S. stores .

Previously, Walmart forecasted earnings per share of 83 cents to 88 cents at the end of its first quarter and the consensus estimate among analysts was 85 cents. Last year, earnings per share from continuing operations were 86 cents. However, the 1.2% same-store sales decline, comprised of a 1.5% decline at Walmart stores and a 0.6% gain at Sam’s Club,  was worse than the planned range of flat to a 3% increase as the company said it misjudged the impact last year’s economic stimulus checks and price deflation.

“We are happy with the performance of our operations around the world. We believe that our comparable-store sales continued to outperform the retail sector almost everywhere we do business,” said Mike Duke, Walmart president and CEO. “In a sales environment more difficult than we expected, we managed our operations in a disciplined manner. Our U.S. segments delivered strong inventory performance, which contributed to the company’s healthy increase in year-over-year earnings. We are accelerating our focus on reducing our expenses.”

Net sales for the second quarter were slightly more than $100 billion, a decrease of 1.4% from $101.5 billion in the second quarter last year, with the biggest drain caused by currency exchange rates, which negatively affected sales to the tune of roughly $4.2 billion. Assuming currency rates with consistent with the prior year, net sales would have increase 2.7% to $104.3 billion and earnings per share would have gained an additional 4 cents on top of the reported 88 cents.

“Our performance this quarter has been good, despite headwinds from price deflation, the effects of the recession and currency exchange rates,” said Walmart CFO Tom Schoewe. “We’re proud that Walmart reported a year-over-year increase in earnings this quarter.” Third quarter profits are expected to fall within a range off 78 cents and 82 cents, including the negative 3-cent impact from currency exchange rates. Same-store sales at U.S. Walmart stores are expected to be between flat and 2% with expectations for Sam’s Club to be roughly flat. Despite the relatively soft sales expectations, ongoing improvement in operations and expense control prompted the company to narrow the range of full-year earnings per share guidance to $3.50 to $3.60 from an earlier range of $3.45 to $3.60.