Wal-Mart suffers lowered profits due to food stamp cuts in the federal budget
By Phil Wahba
(Reuters) – Wal-Mart Stores Inc forecast a lower full-year profit than analysts expect, as fewer food stamps, higher taxes and tighter credit erode its sales, news that sent its shares down 1 percent in premarket trading on Thursday.
The world’s largest retailer expects net sales growth this year to be at the lower end of its forecast range of 3 to 5 percent, Chief Financial Officer Charles Holley said on Thursday.
Wal-Mart said comparable sales at stores open at least a year in the United States – its biggest unit – fell for a fourth straight quarter, by 0.4 percent. Overall revenue in the quarter through January 31, which includes the key holiday season, grew 1.4 percent to $129.7 billion.
A major factor in Wal-Mart’s U.S. performance was a “low-single-digit decline” in sales of groceries at stores open at least a year, which generate about half of its sales.
In contrast, supermarket operators Kroger Co and Safeway Inc reported comparable sales increases for their most recent quarters.
Wal-Mart’s grocery sales have suffered from fewer food-stamp benefits resulting from U.S. federal budget cuts in November. One in five of its shoppers relies on food stamps, according to Cowen analyst Tal Lev.
The giant retailer is trying to mitigate the impact of that by speeding up the rollout of small format stores that will expand its reach into urban areas. It now expects to open between 270 and 300 of those stores this fiscal year, up from an earlier plan of 120 to 150. Comparable sales at such stores were up 5 percent, far better than at Wal-Mart’s supercenters.
“The smaller format is a way to address the problems at grocery, but it’s going to take multiple years for it to have a positive impact on overall results,” said Edward Jones analyst Brian Yarbrough.
The company expects a profit of $5.10 to $5.45 per share this year. Analysts expect about $5.54 a share, according to Thomson Reuters I/B/E/S.
Wal-Mart CEO Doug McMillon, who took the reins on February 1, said in a recording that fixing comparable sales was a priority and to do that, the company would use “price investments,” a Wal-Mart term for lower prices.
At its Sam’s Club chain, comparable sales fell 0.1 percent, compared to gains at rival Costco Wholesale Corp.
Overseas, comparable sales fell in key markets such as Canada and Britain.
The company earned $1.60 per share excluding items, down from $1.67 a year earlier, but one cent better than expected.
The company had warned that its holiday quarter profit would be lower than expected, eroded by reduced food-stamp benefits for millions of Americans, among other challenges.
The retailer faced stiff competition in what many analysts said was the most heavily promoted and discounted holiday season since the recession.
(Reporting by Phil Wahba in New York; Editing by Lisa Von Ahn and Bernadette Baum)