Walmart Reports Solid Q1 Results, But Cautions on Current Sales

In Reports, What's New, Industry News by Jeff Prine

WalmartBentonville, AR—A successful Black Friday and reviving layaway helped Walmart into a solid fourth quarter. Nonetheless, the retail giant warned today that first quarter sales have been weighed down as its consumers struggle with increases in payroll taxes and gasoline prices.

For the quarter ended Jan. 31, the nation’s largest retailer reported earnings rose 7.9% from a year ago to $5.6 billion, or $1.67 a share, up from $1.51 a share a year ago. That was enough to beat analysts’ average estimates of a profit of $1.57 a share.

Total net revenue increased 3.9% to $127.9 billion just missing analysts’ forecast for $128 billion in sales. Walmart also announced it would increase its annual dividend by 29 cents to $1.88 per share for fiscal 2014, an 18% increase over last year.

According to Bill Simon, Walmart’s U.S. chief executive, the company did well on Black Friday weekend and throughout the holiday season. Gimmicks like the store’s strategy of offering hour-long specials on Thanksgiving Day, and the layaway plan did well. Cyber Monday was also’s highest sales day ever.

The company noted, however, that the “first three weeks of December were soft, given our Black Friday success and the additional shopping days this year, but we rebounded with double-digit positive comps the week of Christmas, and continued with strength into the first part of January. ”

Nonetheless, the company’s U.S. comparable store sales were up only 1% during the quarter compared to the store’s prediction for a 1% to 3% increase and analysts’ estimate for a 1.5% increase. A year ago, Walmart U.S. comp store sales rose 1.5%.

Q1 Sales Hurt by Payroll Taxes?

Walmart’s first quarter sales are off to a sluggish start, Simon said.

“In the last couple of weeks of the quarter, we began to see an impact from the increase in payroll taxes and the delay in the income tax refunds,” said Simon.

February sales are slow than planned he added. Last week, Bloomberg New published several internal emails from Walmart executives who were concerned about the company’s worst sales in seven years—“a total disaster” one termed it.

They blamed the slowdown on the payroll tax hike that began Jan. 1, cutting the median family’s take-home pay by about $1,000 this year.

Despite the hit, Simon said he believes consumers are making adjustments and he hasn’t noticed a measurable trade down or change in traffic patterns yet.

“Customers know about it and are adjusting,” Simon said. “We don’t have a clear vision of how they’ll continue to behave throughout the year.”

Comparable store sales in its first quarter are expected to be about flat compared to a year ago, the company said. Last year, comp sales rose 2.6% in the first quarter.

Meanwhile, Rosalind Brewer, chief executive at Sam’s Club, reported that businesses were “more deliberate in their spending” and tended to be stocking up.


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