Wal-Mart sees forex hurting sales after $680 million hit

Wal-Mart Stores Inc. said currency fluctuations cut second-quarter sales by $680 million and will weaken growth this year, adding pressure on the world’s largest retailer as it struggles to overcome slower demand in the U.S.

Wal-Mart sees sales rising as much as 3% in the year ending January 2014, down from a maximum estimate of 6% previously, it said in an earnings statement yesterday. About a third of the revision is due to currency moves.

Currency volatility surged in June after U.S. Federal Reserve Chairman Ben S. Bernanke said the central bank may reduce its bond-buying program, which tends to devalue the dollar. Wal-Mart, which has stores from Mexico to Japan, said it doesn’t use foreign-exchange hedges.

The lower forecast for sales growth reflects “a challenging retail environment and significant ongoing headwinds from anticipated currency-rate fluctuations,” Chief Financial Officer Charles Holley said on a conference call yesterday. Elevated unemployment, higher taxes and rising gas prices that are hurting U.S. consumer demand also prompted the lower forecast, executives said.

JPMorgan Chase & Co.’s Global FX Volatility Index reached 11.96% on June 24, the most since June 2012, after rising at the fastest pace since the collapse of Lehman Brothers Holdings Inc. in 2008.

“Such dramatic swings are certainly not what corporates want to see,” said Callum Henderson, the global head of currency research at Standard Chartered Plc in Singapore. “It’s very difficult for people to respond quickly in such a rapidly changing environment, and people’s mandate depends on how quickly they can respond.”

Forecast Cut

The Bloomberg U.S. Dollar Index, which tracks the currency against 10 major peers including the Mexican peso and the Japanese yen, rallied from a four-month low of 1008.61 on June 14 to a three-year high of 1056.33 on July 8. The index averaged about 2.4% higher during the three months through July compared with a year earlier.

The retailer, which operates worldwide in local currencies and reports results in U.S. dollars, doesn’t use hedging, spokesman Anthony Rose said via e-mail today. The Bentonville, Arkansas-based company assumes currency rates will remain where they are today, he said.

Dollar Forecast

Analysts surveyed by Bloomberg project 14 of the world’s 16 major currencies will continue to weaken against the dollar in the quarter through December, with only the Brazilian real and the Mexican peso strengthening against the greenback.

Wal-Mart is relying more on sales from abroad, with its international division accounting for 29% of its revenue in the year through January, the greatest portion ever.

Second-quarter sales in Wal-Mart’s international unit increased 2.9% to about $33 billion. Excluding the effect of foreign-currency fluctuations and revenue from acquisitions, sales would have risen 4.4% to $33.4 billion.

Wal-Mart fell 0.7% to $73.90 at 9:36 a.m. in New York. The stock gained 9.1% this year through yesterday, trailing the 16% advance of the Standard & Poor’s 500 Index.

www.bloomberg.com

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