Strong Wal-Mart profit trumps bribery probe concerns

Thu May 17, 2012 5:59pm EDT

Shoppers cart their purchases from a Wal-Mart store in Mexico City, April 24, 2012. REUTERS/Edgard Garrido

Shoppers cart their purchases from a Wal-Mart store in Mexico City, April 24, 2012.

Credit: Reuters/Edgard Garrido

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(Reuters) - Wal-Mart Stores Inc's profit and sales surpassed expectations as more people shopped at its established U.S. stores and spent more, pushing shares up more than 4 percent despite ongoing internal and government probes into possible bribery.

Wal-Mart's shares jumped and briefly recovered all of the 8.2 percent plunge sustained after an April 21 New York Times report uncovered an alleged past bribery scheme in Mexico that the newspaper said Wal-Mart executives knew about.

The first-quarter results, including a 10.1 percent increase in profit, showed that Wal-Mart's U.S. recovery was on track and efforts were progressing to cut costs and establish everyday low pricing in markets such as China.

"The real question is, would the stock be higher if it weren't for the investigation? It's very hard to know," said Faye Landes, managing director at Consumer Edge Research.

At the same time, Wal-Mart is seen as a defensive play amid weak economic data and worries about Europe.

Wal-Mart shares could rise to $65 to $70 and perhaps in six to nine months break out of their 13-year trading range, driven by earnings growth, said Gilford Securities analyst Bernard Sosnick. The shares last traded above $70 in 1999.

A strong performance from the Walmart U.S. unit pleased investors. Sales at Walmart U.S. stores open at least a year rose 2.6 percent in the first quarter and should rise 1 to 3 percent in the second quarter, the company said.

The rebound in the United States follows Walmart's reversal of its inventory reduction plan after shoppers headed elsewhere to find goods not on Walmart shelves.

"The turnaround they initiated several quarters ago is starting to show some benefit, it's starting to gain traction. But at the end of the day it is still a very challenging backdrop for them," said Walter Stackow, a senior research analyst at Manning & Napier, which owns Wal-Mart shares.

Stackow cited the financial concerns of Walmart's core customers and the competition Walmart faces from dollar stores and online retailers.

Economic problems, including joblessness, weigh on the world's largest retailer. Many of Walmart's U.S. customers are shopping on a paycheck cycle - spending more and buying larger packages of items at the beginning of the month, then buying less-expensive items and smaller packages as money runs low later in the month.

"We have to continue to see jobs added in the economy. I think that's important across all sectors, especially retail," Chief Financial Officer Charles Holley told reporters.

Wal-Mart's shares closed up 4.l2 percent, or $2.49, at $61.68 on the New York Stock Exchange. Thursday's intraday high of $62.50 marked the first time Wal-Mart shares have risen above the $62.45 level, where they closed just before last month's New York Times story.

PROFIT, SALES TOP EXPECTATIONS

Wal-Mart earned $3.74 billion, or $1.09 per share, up from $3.40 billion or 97 cents a share a year ago. An earlier Easter and warmer weather contributed to the gains, the company said.

Wal-Mart had forecast earnings per share of $1.01 to $1.06. Analysts, on average, had expected it to earn $1.04 per share, according to Thomson Reuters I/B/E/S.

Sales rose 8.6 percent to $112.27 billion, ahead of analysts' forecast of $110.54 billion.

The 2.6 percent rise in same-store sales topped the company's forecast of flat to 2 percent growth and analysts' average forecast of 1.4 percent, according to Thomson Reuters.

Walmart U.S. same-store sales have risen for three straight quarters following nine consecutive quarterly declines. Store traffic has risen for two straight quarters after six declines.

The U.S. unit also reported the first quarterly increase in six years in apparel sales at stores open at least a year.

For the current second quarter, Wal-Mart expects to earn $1.13 to $1.18 per share from continuing operations. Analysts have forecast a profit of $1.16 per share.

BRIBERY INVESTIGATIONS PROCEED

Wal-Mart has been bombarded by negative comments from shareholders, employees and activists after the New York Times reported that Wal-Mart de Mexico, or Walmex, allegedly orchestrated bribes of $24 million to help it grow quickly last decade and that Wal-Mart's top brass tried to cover it up.

Wal-Mart said on Thursday that a number of government agencies in Mexico and the U.S. Department of Justice and the U.S. Securities and Exchange Commission were investigating.

The company contends the matter should not have a material impact on its business, but cannot say for certain that it will not. Along with incurring costs related to the probes, lawsuits and its own review, the process may impinge on the time some executives have to devote to other matters.

On Thursday, proxy advisory firm Egan Jones said Wal-Mart shareholders should withhold their votes for Chief Executive Mike Duke and former CEO Lee Scott and vote for a proposal brought by shareholders requesting regular reports on the company's political spending.

Also on Thursday, two U.S. lawmakers asked for Wal-Mart to allow a former company lawyer to cooperate in their probe.

Walmex sales rose 13 percent and its same-store sales in Mexico rose 5.6 percent. Operating income at the unit was flat. It opened 45 stores in Mexico during the quarter.

Holley declined to comment on Wal-Mart's prior fiscal-year forecast, which calls for earnings of $4.72 to $4.92 per share. The company is expected to update that forecast when it issues second-quarter results. Sales are still expected to rise 5 to 7 percent, he said.

(Reporting by Jessica Wohl and Brad Dorfman in Chicago, additional reporting by Tom Hals in Wilmington, Del., and Aruna Viswanatha in Washington; Editing by Maureen Bavdek and Matthew Lewis)

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Comments (11)
People must generally enjoy being abused. Walmart stores are generally filthy, their customer service is horrible, or non existent, you have to fight with a bunch of foreign cabbies (here in Raleigh, NC it’s Hispanics and African cabbies but in other parts of the U.S. it’s probably some other cabbies that can’t be bothered to learn to speak the English language)for a parking spot, the company seems to be insistent on buying ALL of their product from the cheapest vendor that the Chinese can find, and then once you are in the store you are bombarded with sales vendors trying to sell EVERYTHING from satellite dish packages, to bank accounts, to (the biggest ripoff ever)extended warranty programs which are completely worthless unless you wish to ship the product back to it’s manufacturer in some third world country, and then to read an article claiming sales are flourishing at Walmart makes me wonder WHY, would anybody want to shop there, in the past few months I have been steadfast in my decision to never go in another Walmart EVER and I would strongly advise all who read this to boycott WalMart also if a couple hundred thousand people would simply stay out of WalMart for 1 or 2 months they would need to examine the marketing and sales strategies for Walmart in general….

May 17, 2012 10:47am EDT  --  Report as abuse
Walmart is a cesspool

May 17, 2012 10:48am EDT  --  Report as abuse
bobber1956 wrote:
It does not matter what Wal-Mart’s policies are, what there ethics are like, if they bribe officials and politicians, what Wall Street, DC, or even we think. They have the cheapest products on the market and they will be successful for that reason alone. One of the reasons for that is you do not see Wal-Mart wasting their time slinging mud at every politician, corporate entity, court, race, religion, and social demographic they can think of like the rest of us. The pretty much take the shots, take care of business, and keep giving the majority of people what they want-a good deal. So what is wrong with that?

May 17, 2012 12:17pm EDT  --  Report as abuse
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