Wal-Mart Stores Inc., the world’s largest retailer, cut its annual profit forecast for the second time since August as the uneven economic recovery and increased competition from dollar stores hurt sales. The shares fell.
Profit per share in the year ending January 2014 will be $5.01 to $5.11, Bentonville, Arkansas-based Wal-Mart said today in a statement. That’s down from the forecast of $5.10 to $5.30 it gave three months ago and trailed analysts’ average estimate of $5.19. Wal-Mart in February forecast profit as high as $5.40.
Chief Executive Officer Mike Duke is trying to improve Wal- Mart’s grocery selection and keep prices low to fend off smaller-format stores that offer merchandise starting at $1, all while consumers restrain spending because of unemployment and higher taxes. Sales at Wal-Mart U.S. stores open at least 12 months excluding fuel fell 0.3% in the quarter ended Oct. 25. Analysts predicted they’d be little changed.
“In retail, it comes down to same-store sales, and today was another disappointment,” Brian Yarbrough, an analyst at Edward Jones & Co. in St. Louis, said today in an interview. “On the fringe, they’ve got to be losing customers.”
He recommends buying the shares.
Wal-Mart’s U.S. same-store sales have slid for three straight quarters as a 2 percentage point increase in Social Security taxes reduced spending among its shoppers, many of whom live paycheck to paycheck. The 16-day federal government shutdown that ended Oct. 17 also has damped consumer confidence. The Thomson Reuters/University of Michigan index of consumer sentiment dropped to the lowest level in almost two years this year month.
Wal-Mart, which has a corporate goal of keeping inventory growth at or less than the rate of net sales growth, scaled back its orders from suppliers for the third and fourth quarters to keep inventory from rising too quickly, according to an e-mail from ordering manager at the company’s headquarters that was obtained by Bloomberg News.
In response to the report in September, the retailer said it felt good about its inventory position and was managing it appropriately. The order pullback wasn’t across the board and was happening “category by category,” David Tovar, a spokesman, said at the time.
U.S. inventory increased 5.1%, Bill Simon, the company’s U.S. CEO, said today on a conference call. While that was slower than the 6.9% inventory gain in the previous quarter, it was faster than third-quarter U.S. net sales growth of 2.4%.