Wal-Mart slowdown continues

Don Hogsett, May 21, 2001

BENTONVILLE, AR — Running out of gas along a rocky road for U.S. retailers, Wal-Mart Stores said first-quarter profits sputtered up just 4.1 percent, extending a long earnings slowdown at the world's largest retailer after years of consistent profit growth of 20 percent or more.

The single-digit profit growth stands in stark contrast to earnings growth of 44.8 percent recorded during the first quarter of last year, and the 34.1 percent increase during the first quarter of 1999.

Not so long ago, earnings growth of 10 to 11 percent was considered a major disappointment at the retail juggernaut. But now, profit growth has declined steadily throughout the past 15 months, from 44.8 percent in the first quarter of 2000; to 27.6 percent in the second quarter; to 5.8 percent in the third quarter; 4.5 percent in the fourth quarter of last year; and now just 4.1 percent in the start to the new year.

Putting profits under heavy pressure, average gross margin eroded by 50 basis points, to 21.2 percent from 21.7 percent last year, as the retailer kept its prices sharp to pour on the heat against its competition in a tricky retail environment.

The expense ratio improved slightly, to 16.9 percent of sales from 17.0 percent a year ago.

Putting further pressure on the bottom line, interest costs on the retailer's debt load advanced by 8.0 percent, to $284 million from $263 million. In an added layer of pressure, the company posted a $30 million loss on its minority interest in a joint venture, up from $23 million a year ago.

Sales at the world's largest retailer climbed by 11.8 percent, to $48.1 billion from $43.0 billion the previous year, getting an extra kick from the McLane distribution business, where sales rocketed up by more than 40 percent.

Sales in the core Wal-Mart stores moved up by 11.7 percent, to $30.8 billion from $27.5 billion a year ago. Sam's Club sales rose by 7.5 percent, to $6.5 billion from $6.1 billion. And international sales, off their earlier blistering pace when the company opened new stores and acquired off-shore chains, edged up by 6.1 percent, to $7.6 billion from $7.2 billion. The often overlooked jewel, the McLane food distribution business, pushed sales up by 44.3 percent, to $3.1 billion from $2.2 billion last year, adding almost one billion dollars to the top line and contributing roughly 6.5 percent of total company sales.

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