Walmart's turnaround taking more time

Bentonville, Ark. -- Wal-Mart saw respectable U.S. sales growth in the second quarter, but it wasn't enough to overcome expense pressures and a weak dollar. These negative factors caused the company to turn in one of its worst quarterly profit performances in recent memory.



Walmart made its number, so to speak, producing second quarter earnings per share of $1.08 that were aided by $1 billion in share repurchase activity. The earnings figure was toward the low end of the company's guidance of $1.06 to $1.18 provided at the end of the second quarter, 10.7% below the prior year's $1.21 of profit and four cents below analysts' consensus estimate. Net income from Walmart's continuing operations fell 11.4% to slightly less than $3.5 billion.



"Winning in the future requires change. Change, in this case, requires investment, and investment pressures short term earnings," said Wal-Mart Stores, Inc., president and CEO Doug McMillon. "Our strategy is design to create robust and sustainable growth that will deliver returns to shareholders."



Same-store sales at Walmart's U.S. stores increased 1.5%, slightly better than the approximately 1% gain the company forecast at the end of the first quarter. Same-store sales grew by 7.3% at the small format Neighborhood Market stores. Total sales for the division increased 4.8% to nearly $74 billion, but operating profits tumbled 8.2% to $4.8 billion.



"Our bottom line came in substantially below what was planned," Walmart U.S. president and CEO Greg Foran said during a recorded statement. He blamed a gross margin decline on lower than expected pharmacy reimbursements, accelerating pressures in shrink and higher than expected investments in store labor. "These issues will present continuing profit challenges for the remainder of the year. We are certainly disappointed, but we are not standing still. We know we can do better, and we will."



Sales at Walmart International were negatively affected by a strengthening of the U.S. dollar and declined 9.6% to $30.6 billion. Excluding the nearly $4.2 billion currency exchange headwind, Walmart International sales advanced 2.8% to $34.8 billion. Operating profits declined 14.2% to $1.3 billion and also declined 1.5% on a constant currency basis to $1.5 billion.



Despite the weak showing, Walmart International president and CEO David Cheesewright said, "the International business had a fairly solid quarter, given tough economic environments in certain markets and ongoing currency impacts."



Sales at Sam's Club were negatively affected by lower year over year gas prices and declined 0.9% to $14.7 billion. Excluding fuel, Sam's Clubs' same-store sales increased 1.3%, within the company's forecast range of flat to up 2%.