Wal-Mart's Second Quarter Results

On Tuesday, before the market opened, Wal-Mart reported its second quarter results for fiscal year 2016. The company reported weaker results than expected and lowered its guidance for the rest of the year. Wal-Mart has been unable to benefit from the strengthening of the U.S economy. This is mainly the result of the company investing in higher wages and other costs. Wall-Mart had estimated that the cost of increased wages would cost $20 cents/share, but will actually cost $24 cents/share. This will impair the company's earnings for the rest of the year. As a result of the strengthening dollar compound by Wal-Mart's investments, earnings will continue to compress going forward.
After the company reported its results, Wal-Mart's shares fell over 3%, closing Tuesday at $69.30/share.

Wal-Mart saw profits fall to $3.48 billion dollars or $1.08/share compared to $3.92 billion dollars or $1.21/share in the previous quarter last year. The company fell short of analyst estimates of $1.12/share. Wal-Mart lowered its guidance for the remaining of the year to $4.70 dollar/share. Wal-Mart's investments to improving its stores and expanding wages for workers will cost $24 cents/share. The company originally estimated that these investments would cost $20 cents/share, but instead they raised their projections for the year.

In the second quarter earnings report, CEO and President Doug McMillion discusses the company's investments in its stores and employees.
"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. 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." Doug McMillon, President and CEO, Wal-Mart Stores, Inc.
Wal-Mart announced back in February that the company was going to invest $1 billion dollars into higher wages and training of employees. The company even said that higher wages and investments in e-commerce would raise heavily on earnings going forward. The strong dollar caused Wal-Mart's operating income for its international operations to fall 14% during the second quarter. Wal-Mart saw same store sells for it s U.K. subsidiary Asda decline of 4%. The decline at Wal-Mart's U.K. subsidiary was the worst it has seen in 16 years.
The company opened four automated fulfillment centers during the second quarter. Wal-Mart's Global e-commerce President Neil Ash explained the new upgrades during Wal-Marts earnings call:
"We opened two new automated online fulfillment centers, each bigger than 20 football fields, and we have two more coming this quarter. These fulfillment centers are strategically located across geographies and will begin to serve our customers this holiday. They will be cornerstones of our fulfillment network going forward."
The investments in these fulfillment centers will help increase profits by reducing distribution cost for the company. Wal-Mart has a long history of innovation in the logistics of distribution of products sold by the company. The company is in the process of using innovation to lower distribution and operating cost to increase profits for the company.
Wal-Mart has lowered its forecast to open smaller-format stores to 160 to 170 Neighborhood Markets. The company is still on track to open 60 to 70 Super-center store this year.
Published on Aug 19, 2015
By Cody Eustice
Cody is a freelance writer who has been writing financial articles for various sites for over a year now. He is a value investor looking for companies that sell for far less than their estimated business value.

Copyrighted 2020. Content published with author's permission.

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