(Reuters) - Wal-Mart Stores Inc (WMT.N) on Thursday reported a higher-than-expected quarterly profit as increased drug prices and solid demand for basic apparel items boosted sales, and its shares jumped more than 9 percent.
The discount retailer’s performance bucked a string of weak results from competitors. On Wednesday, rival Target Corp (TGT.N), which caters to a higher-income customer than Wal-Mart, gave a cautious outlook and reported a lower-than-expected rise in quarterly sales due to unseasonable weather and soft demand.
“It looks like the middle-to-higher-income customers have cut back, but the lower-income customer is spending,” said Edward Jones analyst Brian Yarbrough.
While Target cited sluggish demand for clothing and electronics, Wal-Mart said its sales of those products picked up. Even the mild weather provided a boost by lowering the cost of heating the company’s more than 5,000 U.S. stores.
The upbeat results also suggest Wal-Mart may be benefiting from a two-year, $2.7 billion investment to increase entry-level wages and train its workforce, and a campaign to make its stores cleaner and checkouts faster. Store visits increased 1.5 percent in the first quarter ended on April 29.
Greg Foran, who heads the U.S. division, said dozens of improvements, like cleaner parking lots, better presentation of fresh food and inventory management changes that led to more fully stocked shelves, were boosting demand.
“As you gradually improve on these 100-plus aspects, then the customer gets a better experience that’s reflected in them coming to visit you more often and (putting) one extra item in the trolley,” Foran said on a call with reporters. “We still lag many of our competitors in terms of shopping experience, and frankly we should never rest.”
Net income attributable to Wal-Mart fell to $3.08 billion from $3.34 billion a year earlier, reflecting the costs of boosting the company’s minimum wage to $10 an hour and investing in automated warehouses dedicated to filling online orders.
Earnings per share of 98 cents beat the analysts’ average estimate of 88 cents, according to Thomson Reuters I/B/E/S.
Sales at U.S. stores open at least a year rose 1.0 percent, excluding fuel price fluctuations. That marked the seventh straight quarterly rise and was stronger than market expectations for an increase of 0.5 percent, according to research firm Consensus Metrix.
For the current quarter, Wal-Mart said it expected an increase of about 1.0 percent in U.S. same-store sales. It forecast earnings per share of 95 cents to $1.08, against market expectations of 98 cents.
First-quarter revenue rose 0.9 percent to $115.9 billion despite a $3.5 billion hit from a stronger dollar, which reduces the value of overseas sales. International sales fell 7.2 percent to $28.1 billion, although the division’s operating profit rose 8.8 percent to $1.2 billion, helped by cost cuts.
Online sales growth again decelerated, to 7 percent in the first quarter from 8 percent, 10 percent, 16 percent and 17 percent in the previous periods. Wal-Mart said sales grew faster in the United States than overseas but fell short of its goal overall.
Asked about slowing online growth, Chief Financial Officer Brett Biggs said Wal-Mart had yet to capitalize on big changes it made over the past few years, which included a new technology platform, building a network of warehouses and expanding its e-commerce assortment to 10 million items.
“That’s a lot of change over a two-, three-year period,” Biggs said in an interview. “We are just really starting to come out of some of those big changes.”
Wal-Mart’s online sales rose 12.3 percent to $13.7 billion in 2015, according to research firm Internet Retailer. That compares with a more than 16 percent jump to $92.4 billion for market leader Amazon.com Inc (AMZN.O).
Shares of Wal-Mart were up 9.3 percent at $69.05 in morning trading. The stock has nearly recovered from its 9.6 percent fall in the month through Wednesday’s close, a slide that corresponded with declines in other retail stocks.
Reporting by Nathan Layne in Chicago; Additional reporting by Nandita Bose; Editing by Lisa Von Ahn