follow us

Wal-Mart Bearish After Tough 1Q

Bentonville, Ark. — Wal-Mart issued wide-ranging guidance for its second fiscal quarter of 2006 after a weaker-than-expected first fiscal quarter performance and warned that its original earnings guidance for the year would be tough to deliver. (Full Wal-Mart quarterly financial results are detailed on page 20.)

Tom Schoewe, chief financial officer, said Wal-Mart estimated sales for the second quarter would be up in the range of 2 to 4 percent, with earnings guidance of 63 to 67 cents per share, “given the uncertainty around the economy and oil prices.”

Schoewe added that the previously issued guidance for the full fiscal year of 2006, $2.70 to $2.74, was “still possible but far more difficult given our current outlook for the second quarter.”

The second quarter, he said, would be challenging, though the company expected improved sales of seasonal merchandise in the Wal-Mart division given the weather outlook. However, oil still clouded the future.

“Gas prices will continue to impact the consumer and result in below plan sales, although we intend to make progress, expense pressure will remain in payroll, maintenance and insurance.”

As for the recently ended first quarter of fiscal 2006, which produced a comp-sales increase of 2.9 percent, “The results were not up to Wal-Mart's standards,” said President and CEO of Wal-Mart Stores Lee Scott.

The company did improve its merchandising, he said, still focusing on opening price point products while improving product selection and depth at the mid and premium price points. Scott added that sales of domestics and fashion apparel were strong during the quarter, with seasonal goods responding to good weather.

Total inventory, he said, grew faster than sales due largely to an increase in the amount of globally sourced merchandise. “Though it increased our costs, this was more than compensated for by the higher gross margin which improved 20 basis points due to savings from global sourcing. Those improvements did not come from raising prices.”

Again, gas prices figured into the company's prognostication, as Scott said his outlook fluctuated with it.

“Personally, I continue to be optimistic about the economy as oil prices have slowed the recovery, but they seem to be stabilizing. If oil prices stay at the current level or go down, we will see better sales momentum like we did in February,” he said. “The first half of this year, though, will be the most difficult.”

On the international front, the company reported a 12.4 percent sales increase, with Mexico, Argentina and Brazil showing the best numbers.

During the quarter, Wal-Mart opened two discount stores, ending the quarter with 1,320; 13 supercenters, ending the quarter with 1,761; one Sam's Club, ending the quarter with 562; one Neighborhood Market, ending the quarter with 86. Total U.S. store count came in at 3,719. Internationally, the company opened 13 stores, relocated or expanded two and ended the quarter with 1,596 locations.

Featured Video