Wal-Mart (WMT) Posts Lackluster Earnings on Weak International Growth

Wal-Mart (WMT: Charts, News), the largest retailer in the world by sales, posted lackluster earnings last week, reporting second quarter earnings of $1.18 per share on revenue of $113.5 billion. Although this beat the Street estimate of $1.17 per share, it missed the revenue forecast of $115.75 billion.

Wal-Mart's revenue was negatively impacted by the strength of the U.S. dollar during the quarter. Excluding the currency impact, sales actually came in at $115.7 billion, barely missing the consensus estimate. This was an 8.3% increase in profit and 4.5% increase in sales from the prior year quarter. Same-store sales at Wal-Mart rose 2.2%. Sales at its wholesale Sam's Club stores, excluding fuel sales, rose 4.2%. Looking ahead, Wal-Mart expects full-year earnings between $4.83 to $4.93 per share, in line with analysts' expectations of $4.93 per share. Daily Chart
Wal-Mart also faced difficulties abroad during the quarter. The company is slowing the opening of new stores in China and Brazil, two of its key emerging markets, after the company "made mistakes" and "let profitability slip" in attempt to expand rapidly. The company noted that many stores in China were not standardized, and placed in unsuitable buildings, with multiple levels and "odd shapes." The company plans to cut its new overseas store openings by approximately 30%, the monetary equivalent of 115 to 126 U.S. Wal-Mart Supercenters. CFO Charles Holley stressed that the slower openings was not caused by macro slowdown in China and Brazil, or corruption allegations in Mexico. Wal-Mart was not the only one to back off the lucrative Chinese and Brazilian markets. Wal-Mart's sales grew 5% in China and Brazil. Its net income increased slightly in China while it posted a loss in Brazil. French giant Carrefour has noted that the "superstore" format needs to be readjusted for the Chinese market, while its weak Brazilian stores may be acquired by rivals this year. British superstore Tesco also scaled back its expansion plans in China. Analysts believe that large multinational superstores are beginning to focus on smaller stores and e-commerce in emerging markets, to avoid high inventory and real estate costs. The superstore, or "hypermarket" format, is especially vulnerable to downturns, since big box retailers with unsold inventory can collapse far faster than e-commerce giants such as Amazon (AMZN: Charts, News) or eBay (EBAY: Charts, News). Wal-Mart, which also includes U.K.-based Asda, currently generates 28% of its revenue from international markets. International sales grew 7.2% to $32.3 billion, a drop from the 10.9% growth it posted in the first quarter. In Mexico, Wal-Mart is still feeling the aftershocks of the ongoing bribery investigations, which allege that the company paid bribes to obtain store permits six years ago. Wal-Mart is expected to increase its earnings 8.3% annually over the next five years. The company has continued its plan of aggressively lowering prices to fuel its high volume, low margin business model. The company also expects back to school items, which have been stocked since early July, to boost the company's third quarter sales as a new school year starts. Shares of Wal-Mart have performed strongly over the past twelve months, rallying 39% while the S&P has risen 18.5%. The stock trades at 13.4 times forward earnings with a 5-year PEG ratio of 1.8, and is fundamentally undervalued. The stock also pays a quarterly dividend of 40 cents per share - a 2.2% yield at current prices - which has been raised every year since its inception in 1974. Other News About WMT An Income Producing Strategy And Hedge For Wal-Mart Is Wal-Mart an ideal long-term income investment? Shareholder Sues Wal-Mart for Access to Mexico Bribery Documents Shareholders grow impatient with Wal-Mart's Mexican troubles. Other Stocks in the News Facebook Shares Hit New Low as a Lockup Period Ends Zuckerberg admits that it's "painful" to watch Facebook stock continue its devastating slide. Groupon Shares Hit New Lows; Cash Burn' a Big Concern Groupon shares are plunging in free fall as the company burns through its cash. Copyright 2012 by InvestorGuide.com, Inc. InvestorGuide has no control over the sites we link to, is not affiliated with these sites, and cannot take responsibility for their quality or suitability. The news, analysis, commentary and profile information is not meant to be comprehensive, and the data provided is not guaranteed to be accurate. WebFinance Inc., the publisher of this newsletter, is not a registered investment advisor or a broker/dealer. This is not a stock recommendation newsletter but rather a source for investment ideas, and we encourage you to fully research any company before considering investing. The opinions expressed herein are those of the author and do not necessarily represent the views of nor are they endorsed by WebFinance Inc. No employee of WebFinance has owned or currently owns any shares in the company described above. The above is neither an offer nor solicitation to buy or sell any securities. The trading of securities may not be suitable for all potential readers of this newsletter, and the purchase of stocks mentioned in this newsletter may result in the loss of some or all of any investment made. We recommend that you consult a stockbroker or financial advisor before buying or selling securities or making investment decisions. We are not responsible for claims made by advertisers and sponsors. Anyone who makes decisions based on what they read here does so at their own risk and cannot hold WebFinance Inc. (DBA InvestorGuide.com, Inc.) or its employees responsible.

Published on Aug 20, 2012
By Leo Sun
Leo Sun
Leo Sun is a freelance finance writer and position trader. He focuses on a combination of value and momentum investing, with a strong interest in the trading philosophies of Warren Buffett and Peter Lynch. Leo also has experience writing articles to help small business owners acquire loans and manage their finances. He regularly contributes to the Stock of the Day analysis.

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