Walmart Q4 Profit Lower, but U.S. Sales Pick Up

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Bentonville, AR—Walmart reported today that its fourth quarter earnings were less than a year ago, but that its U.S. division is slowly rebounding, showing its second straight quarter of comparable store gains.

For the quarter ended Jan. 31, the retail giant posted net income nearly 15% lower than a year ago: $5.16 billion, or $1.50 a share, compared to $6.05 billion, or $1.70 per share, a year ago. Adjusted for certain tax benefits, earnings reached 1.51.

Net sales rose 5.9% to $122.28 billion, including a $2.4 billion contribution from its purchase of Netto stores in the United Kingdom, and Massmart in South Africa. Foreign currency translations hurt sales by $1 billion.

Analysts’ average estimate was expecting earnings of $1.46 a share on sales of $123.9 billion.

Sales have begun to rebound in its Walmart U.S. division which was helped by the company’s relaunch last fall of a layaway program as well as its emphasis on everyday low pricing, including price-matching guarantees. U.S. sales rose 2.4% to $72.8 billion while comparable store sales inched up 1.5%, missing most analysts’ estimates but giving the retailer a consecutive quarterly increase.

“We are pleased with Walmart’s earnings performance for both the fourth quarter and the full year,” said Mike Duke, Walmart’s president and chief executive officer. “Today, every segment of our business is stronger than it was a year ago, and we’re in a great position for fiscal year 2013.”

Most of the sales gains were due to food and health products, entertainment items and sporting goods and home. Apparel was the only category that declined, the company said.

“Many families are settling into a new normal. Core customers remain cautious about their finances, and they rely on Walmart’s low price promise to help them manage through today’s economic challenges,” said Duke.

“You can expect us to invest even more in lower prices,” Duke said. The company plans to invest some $2 billion to stay “price competitive.”

‘Company’s Initiatives Are Gaining Traction’

In its international division, Walmart said sales jumped 13% to $35.5 billion. Excluding the impact of acquisitions and currency translations, sales rose 8.5%. Walmart said earlier it plans to invest more than $750 million in Canada.

At Sam’s Club, sales rose 6.8% to $14 billion, comparable store sales increasing by 5.4%.

Although the price investment strategy seemed to be working for Walmart U.S., it comes with a price: gross margin narrowed in the fourth quarter, including a 0.13 percentage point drop at Walmart U.S.

“Traffic turns positive but at a cost,” said Greg Melich, analyst at ISI Group. “Initiatives of layaway, multi-channel integration, and expanded assortment have turned traffic and comparable sales. Yet the investment in gross margin, inventory and resulting muted per-share profit guidance will keep the stock in check.”

While Walmart U.S. appears to be in a turnaround mode, the retailer’s management remains “cautiously optimistic” about improvements in unemployment and concerned about rising gas prices.

Perhaps reflecting that concern, the company issued a first quarter forecast below analysts’ estimates. The retailer predicts earnings will be between $1.01 to $1.06 a share compared with a profit of 98 cents a share a year earlier. Comparable store sales are expected to be flat to up 2%. Analysts’ average estimate expects $1.05 a share.

“While Walmart’s overall profit miss may disappoint some investors, we believe the continued momentum especially in its Walmart U.S. business demonstrates that the company’s initiatives are gaining traction,” said Citigroup analyst Deborah Weinswig.