Walmart’s store experience efforts ding profits

Lower gas prices led to improved traffic and a 1.1% same store sales increase at Walmart’s U.S. stores division, but total company performance suffered under the weight of a $3.3 billion foreign exchange impact and expense pressures which caused profits to decline 7%.

Total company sales declined 0.1% to $114.8 billion, but increased 2.7% to 118.1 billion if the negative effect of currency exchange rates are excluded from the calculation. Net income declined 7% to $3.34 billion during the quarter ended April 30. Earnings per share of $1.03, although within the company’s guidance range of 95 cents to $1.10 were below the prior year’s level of $1.10.

In addition to the foreign exchange effect that the company said was greater than it expected, incremental investments in e-commerce dinged profits by another two cents as did investments in employee training and compensation announced earlier this year.

Sales at the U.S. stores division increased 3.5% to $70.2 billion, but operating profits declined 6.8% to $4.6 billion as Walmart invested in employee wages and added labor to stores as part of a broader effort to improve the shopping experience.

In April the company increased its minimum hourly wage to $9 and also put 8,000 department managers back on the sales floor.

“These department managers will have responsibility for a smaller area of the store ensuring that they have the knowledge and the time to engage with both the customers and store associates driving an overall better experience,” said Walmart U.S. president and CEO Greg Foran.

Foran added that U.S. comp sales growth was driven by a 1% increase in traffic as customer benefitted from lower gas prices and responded favorably to some of new assortments for spring and summer.

“All formats had positive comps for the quarter, including our traditional-format Neighborhood Markets, which posted approximately a 7.9% comp. A focus on customer service and in-stock position drove strong traffic in this format,” Foran said. “Customers continue to see the benefit of Neighborhood Markets to meet their everyday needs, including convenient access to services such as drive-thru pharmacies and fuel stations.”

Sam’s Club also had a challenging quarter with a lower than expected 0.4% same store sales increase and worse than expected profits. Operating profits declined 10.9% to $427 million even though membership increased 7%. In a vote of confidence, Wal-Mart Stores, Inc. President and CEO Doug McMillon said recently launched new services have promise for improved member acquisition and retention, and investments in Club Pick-up and e-commerce are starting to pay off.

“However, we need more consistent progress, and I’m confident that the strategic plan the Sam’s Club team is working on will lead to longer-term improvements in our club business,” McMillon said.