UPDATE 5-Wal-Mart eases investors fears, U.S. shoppers feel pain

Thu Feb 21, 2013 1:09pm EST

* Profit $1.67/share tops Street view $1.57/share
    * Dividend raised 18 percent
    * Walmart U.S. sales up 1 pct, seen flat in current qtr
    * Shares rise 3 percent


    By Brad Dorfman and Jessica Wohl
    CHICAGO/BOCA RATON, Fla., Feb 21 (Reuters) - Wal-Mart Stores
Inc 18 percent dividend increase and comments that U.S.
sales patterns were more normal late last week after a slow
start to the year helped boost shares of the world's largest
retailer 2.6 percent on Thursday.
    The retailer also reported a bigger-than-expected profit
increase, which was helped by a lower-than-anticipated tax rate.
    Still, the company's results solidified a picture of a U.S.
consumer worried about the impact of higher payroll taxes and
gasoline prices, along with slow tax refunds that put some
spending on hold.
    Walmart U.S., Wal-Mart's largest unit by far, had a slow
start to February, which Walmart U.S. Chief Executive Bill Simon
attributed largely to the tax refund delay. The company expects
sales at Walmart U.S. stores open at least a year, or same-store
sales, to be about flat during the current first quarter. A year
earlier, such sales rose 2.6 percent.
 
   But the company has also been focusing hard on its strategy
of offering low prices and the economic pressure could help it
in the long run, some analysts said.
     "I think Wal-Mart is quite well positioned actually,"
Stewart Samuel, a senior analyst with food and grocery
researcher IGD, said. "If there is any sort of trading down,
Wal-Mart will benefit from that."
    The forecast was likely not as bad as the market feared
after a Bloomberg report, citing an internal Wal-Mart memo on
the weak sales that sent the stock down on Friday, Janney
Capital Markets analyst David Strasser said in a note to
clients. 
    Meanwhile, the company raised its dividend to $1.88 a share
for fiscal 2014. Based on Wednesday's close, that gives the Dow
Jones Industrial Average component a yield of 2.7
percent, compared with a yield of 2.6 percent for the broader
index and 1.97 percent for the benchmark 10-year U.S. treasury
bond.
    Efforts such as extending its layaway program and matching
competitors' prices initially attracted shoppers during the
competitive holiday season, but Walmart U.S. same-store sales
rose just 1 percent in the fourth quarter. The company had
forecast an increase of 1 percent to 3 percent, and analysts, on
average, had anticipated a 1.5 percent gain.
    A year earlier, Walmart U.S. same-store sales rose 1.5
percent.
    Wal-Mart said the U.S. division, its biggest unit, gained
market share in major categories of food, consumables, health
and wellness and over-the-counter medications, as well as in
entertainment and toys, which are big sellers during the holiday
period. It cited data from Nielsen and the NPD Group.
    The company is also changing some package sizes and other
offerings in its stores to accommodate shoppers hurt by the
payroll tax increase, although Simon said the company has not
seen customers trading down yet.
    "We are confident that our low prices will continue to
resonate, as families adjust to a reduced paycheck and increased
gas prices," Simon said in a statement.
    
    CONSUMERS TAXED 
    The results from Wal-Mart are the latest sign of pressure on
U.S. consumers due to the Jan. 1 expiration of a 2 percentage
point cut in payroll taxes, a delay in income tax refund
payments and a 30 cent increase in gasoline prices this year
through last week.
    Consumer sentiment for lower-income individuals fell for a
third straight month in January to its lowest level since
November 2011, according to University of Michigan data.
    "Wal-Mart is a proxy for the broader U.S. consumer. We have
been hearing that February is off to a slow start and this adds
to that view," Joseph Feldman, a senior retail analyst at Telsey
Advisory Group, said.
    Wal-Mart has cashed some $1.7 billion in tax return checks
at its U.S. stores so far this year, Simon said. At this point
last year, that amount was about $3 billion.
    That not only delays spending, but may also affect what
people buy. For example, Simon said that when consumers cash a
tax check in the week before the Super Bowl, they tend to buy a
television. The retailer does not know how the later refund
checks will be spent.
    "The delay in income tax refunds has really affected their
business and they have been seeing lower volumes driven by the
increase in payroll tax," said Kim Forrest, a senior equity
research analyst at Fort Pitt Capital Group in Pittsburgh. "And
those are things we can't escape from because more money is
going to the government and less money came from the
government."
    
    FORECASTS PROFIT GROWTH
    Wal-Mart earned $5.61 billion, or $1.67 per share, from
continuing operations in the fiscal fourth quarter, up from
$5.19 billion, or $1.51 per share a year earlier.
    Wal-Mart had forecast a profit of $1.53 to $1.58 per share
from continuing operations, and analysts expected it to earn
$1.57 per share, according to Thomson Reuters I/B/E/S.
    Revenue rose 3.9 percent to $127.92 billion.
    The company forecast first-quarter earnings per share of
$1.11 to $1.16, up from $1.09 a year earlier.
    It also forecast fiscal-year earnings per share of $5.20 to
$5.40, including about 9 cents in increased costs for its
e-commerce operations. It earned $5.02 per share in fiscal 2013.
    Wal-Mart spent $157 million last year on its own probe of
alleged bribery allegations in Mexico, Brazil, China and India,
and on improvements to its compliance programs. A New York Times
article in April 2012 unveiled alleged bribery at the major
Mexican unit.
    The company said its forecast includes about $40 million to
$45 million in first-quarter costs related to foreign corrupt
practices act and compliance matters.
     Wal-Mart saw traffic weaken in a majority of international
markets in the fourth quarter. Consumers in China were shifting
to weekly stock-up trips from daily shopping, while convenience
shoppers in Brazil, Canada and Mexico shopped less and bought
fewer items. Sales growth also slowed at its British Asda unit.
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