Wal-Mart declines after profit forecast trails some estimates

Aug. 16 (Bloomberg) -- Wal-Mart Stores Inc., the world’s largest retailer, dropped in New York trading after its forecast for profit this year trailed some analysts’ estimates amid slowing sales gains in the U.S.

Wal-Mart fell 2.4 percent to $72.67 at 8:53 a.m. The shares advanced 25 percent this year through yesterday.

Profit this year may be $4.83 to $4.93 a share, up from a previous forecast of $4.72 to $4.92, the Bentonville, Arkansas- based company said today in a statement. The average estimate of 28 analysts was for profit of $4.93. Third-quarter profit per share will be $1.04 to $1.09. Analysts project $1.05.

Chief Executive Officer Mike Duke has been cutting prices to lure shoppers seeking bargains amid the weakening U.S. economy. Second-quarter sales at U.S. Wal-Mart stores open at least a year gained 2.2 percent, slower than the 2.6 percent gain in the first quarter.

“The market wanted all-around perfection,” Brian Sozzi, chief equity analyst with New York-based research firm NBG Productions Inc., said in a telephone interview. “Same-store sales were up, but not at the top end of guidance. Investors also wanted more upside on earnings guidance and didn’t get it.”

Second-quarter net income rose to $4.02 billion, or $1.18 a share, from $3.8 billion, or $1.09, a year earlier, Wal-Mart said. The average of 26 analysts’ estimates compiled by Bloomberg was $1.17 a share.

Total revenue rose 4.5 percent to $114.3 billion in the quarter. That trailed analysts’ $115.8 billion average estimates. Currency exchange rate fluctuations reduced sales by about $2.2 billion.

Consumer Pressure

Duke said consumers in the U.S. and in Wal-Mart’s key international markets are still struggling and will keep shopping for the lowest prices.

“Given continuing economic pressures, we believe that our price leadership and value are growing in importance to customers across income levels,” Duke said in the statement. “Walmart’s low prices drive greater customer loyalty.”

Consumers will continue to struggle, and Wal-Mart’s focus on low prices should continue to bring in shoppers, Natalie Berg, an analyst with London research firm Planet Retail, said in a telephone interview.

“Wal-Mart is well-placed to capitalize on cash-strapped consumers,” Berg said.

The company’s international operations boosted sales 6.4 percent to $32 billion, and Sam’s Club sales climbed 3.8 percent to $14.2 billion.

Mexico Investigations

Wal-Mart didn’t provide an update on the investigations by the U.S. Department of Justice and the U.S. Securities and Exchange Commission into possible violations of the Foreign Corrupt Practices Act. The government agencies are investigating allegations that Wal-Mart systematically bribed Mexican officials so it could more quickly open stores in the country.

Federal and local government agencies in Mexico also have started investigations of these matters, and the company has said it is cooperating with those probes as well.

Several of Wal-Mart’s shareholders have filed lawsuits against the company, current and former directors and officers and past and present officers of its Walmex unit. Wal-Mart’s board audit committee is conducting a probe as well.

Bloomberg News

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