Wal-Mart Stores posted second quarter net income of $3.475 billion, 15% below the same period in 2014 and well below the consensus of analyst estimates. Lower margins on U.S. sales and ongoing investments in wages and e-commerce not only hit the bottom line, but caused execs with the retailer to lower earnings guidance for the rest of the year.
The per share earnings of $1.08 missed the consensus estimate of $1.12. However, the company said in its Tuesday morning (Aug. 18) quarterly earnings report that currency exchange issues resulted in a loss of 4 cents from per share earnings.
On the upside, the company reported a 1.5% increase in comp sales and healthy 7.3% comp sale increase in its Neighborhood Market stores. Global ecommerce sales rose 16%.
Wal-Mart Stores CEO Doug McMillon noted the pressure on near-term financial performance because of the investments in raising wages, employing more people and adoption of new technologies.
“We're pleased that the investments we've made are helping to improve our business. Even if it's not as fast as we would like, the fundamentals of serving our customers are consistently improving, and it's reflected in our comps and revenue growth,” McMillon said in the report. “In this case, our desired changes require investments, which are pressuring earnings this year. We're confident that our strategic plan will create robust sustainable growth for shareholder returns over time.”
Total quarterly revenue was $120.229 billion, just ahead of the $120.125 billion during the same quarter of 2014.
The company also lowered its full-year earnings guidance from a range of $4.70 to $5.05 per share to $4.40-$4.70 per share. The cost of higher wages, training and more store workers will pull 24 cents from per share earnings for the year, with 8 cents of that coming in the third quarter. Investments in e-commerce is estimated to lower full year earnings per share by between 6 cents and 9 cents.
"We continue to invest in our business to enhance the customer experience. Operating profit will be pressured for the remainder of the year, due to continued investments in store associate wages and additional hours, as well as headwinds from pharmacy reimbursements and ongoing shrink, primarily in Walmart U.S.,” Wal-Mart Chief Financial Officer Charles Holley noted in the earnings report.
For the first half of Wal-Mart’s fiscal year, revenue totaled $235.055 billion, just under the $235.085 billion in the same period of 2014. Net income for the first half of the fiscal year was $6.816 billion, below the $7.686 billion in the same period of 2014.
Although total revenue was up during the quarter, operating income fell in the retailer’s three primary divisions. Operating income during the quarter at Walmart U.S. was $4.819 billion, down 8.2%. Operating income at Walmart International was $1.277 billion, down 14.2%, and operating income at Sam’s Club was $428 million, down 13.4%.
Wal-Mart shares (NYSE: WMT) closed Monday at $71.91. During the past 52 weeks the share price has ranged from a $90.97 high to a $70.36 low.
The City Wire will update this story later today.