Walmart Cuts Full Year Profit Forecast as Shoppers Cut Back

Walmart checkoutBentonville, AR—Confirming a concern that middle income consumers have been reluctant to spend on discretionary purchases, Walmart today reported a modest profit and sales gain and lowered its full year forecast.

Said CFO Charles Holley: “The retail environment remains challenging in the U.S. and our international markets, as customers are cautious in their spending.”

For the quarter ended July 31, the world’s largest retailer posted only a 1.3% increase in its net profit to $4.07 billion, or $1.24 a share, compared with a profit of $4.02 billion, or $1.18 a share, in the year ago quarter. Excluding one-time items, Walmart earned $1.25 a share, in line with analysts’ consensus.

Net revenue increased 2.3% to $116.2 billion, missing analysts’ estimate for $118.09 billion in sales. In its second consecutive reported decline, Walmart’s comparable store sales were down 0.3% missing its own forecast for flat at worse comp sales, and missing analysts’ estimate for a 0. 7% increase.

The retailer’s U.S. sales increased 2.1% to $68.73 billion, again missing estimates for $69.34 billion.

Back to School Sales? ‘Not Off to a Good Start’

“Consolidated net sales and our Walmart U.S. comp were below expectations,” reported Mike Duke, president/ceo. “While the retail environment was challenging across all of our markets, the Walmart U.S. and Sam’s Club businesses improved comp sales from the first quarter, and the growth of International sales was consistent.”

Overseas sales were up 2.9% to $32.96 billion, but still trailed forecasts for $34.14 billion. Operating margins slipped to 5.8% from 5.9%.

While CEO Mike Duke called the “the retail market was challenging across all of our markets,” Walmart said its inventory levels had increased 6.8% due to soften sales—a situation that could mean the retailer would pull back on order ahead of holiday. And even though the company’s cost control measures have helped margins, Walmart still has to expenses including upgrading its e-commerce operations and costs relating to its foreign bribery investigation.

Holley told analysts that the retail giant assumes consumer spending will continue to be cautious through the end of the year.

As a result, Walmart lowered its full year earnings forecast to $5.10 to $5.30 a share, down from its previous forecast for $5.20 to $5.40. Analysts’ consensus expects $5.30 a share.

For its third quarter earnings, the retailer forecast $1.11 to $1.16 a share, below analysts’ estimate for $1.17.

Noted Janney Montgomery Scott analyst David Strasser, who rates Walmart as “Buy,” “The key issue here then, we have to assume that back-to-school is not off to a good start.”

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Jeff Prine

Jeff Prine, Editor at Large, Accessories Magazine
Jeff returns as a regular contributor to Accessories magazine. Initially Jeff worked as senior editor at Accessories more than 20 years ago and his love of the industry has followed him until present. Since his tenure here, Jeff has continued to report jewelry, watch and other luxury goods trends as executive editor at Modern Jeweler magazine, fashion director at Lustre, and as contributor on products and trends for consumer and trade publications and websites. In addition to his editorial experience, Jeff also served as an adjunct instructor for accessories merchandising at Fashion Institute of Technology. jeffp@busjour.com