It was a tough quarter for Wal-Mart Stores Inc. The world's largest retailer reported Thursday that its first-quarter profit edged up slightly, but the company struggled with a sales slump in its namesake business.
The company, based in Arkansas, blamed a payroll tax increase, delayed tax refunds and bad weather for profit and sales results that missed Wall Street expectations.
The company also offered a profit outlook that came below analysts' projections. Wal-Mart's stock fell $1.76, or 2.2%, to $78.10 in premarket trading.
Wal-Mart is considered an economic bellwether because the retailer accounts for nearly 10% of nonautomotive retail spending in the US. The company's latest results show that many of its low-income shoppers are struggling even as the job market and housing market are improving.
"This is a reality check for Wal-Mart's low-income shoppers," said Brian Sozzi, CEO and chief equities strategist at Belus Capital Advisers. "The low-income shopper is even more financially stressed than people realize."
A big hurdle for Wal-Mart's financially strapped shoppers has been tax changes. An increase in the payroll tax of two percentage points, which took effect Jan. 1, means that a take-home pay for a household earning $50,000 a year has been sliced by $1,000.
Internationally, Wal-Mart is facing slower growth amid a global recession.
A bribery scandal also threatens to slow its business overseas. Allegations first surfaced a year ago that Wal-Mart failed to notify law enforcement that company officials authorized millions of dollars in bribes in Mexico to speed up getting building permits and gain other favors. Wal-Mart has been working with government officials in the US and Mexico on that investigation. The company has been strengthening its compliance controls.
Wal-Mart has already slowed its expansion plans in Mexico, and last November it said it was looking into potential US bribery law violations in Brazil, China and India.
Wal-Mart said Thursday that it earned $3.78 billion, or $1.14 per share, in the quarter that ended April 30. That compares with $3.74 billion, or $1.09 per share, a year earlier.
Sales rose 1% to $113.43 billion. That figure excludes Sam's Club membership fees.
The results fell short of Wall Street expectations for earnings of $1.15 per share on revenue of $115.78 billion.
Wal-Mart reported a 1.4% drop in revenue at stores open at least a year at its namesake business, which accounts for about 60% of its business. That was the first drop in about a year and a half. At Sam's Club, the figure rose a slim 0.2%, held down by less traffic from business customers, bad weather and lower-than-expected inflation.
For the total US business, revenue at stores open at least a year fell 1.2%, below the 0.4% increase that analysts had expected.
Wall Street analysts had expected its US namesake business to be unchanged and were projecting a 1.2% rise at Sam's Clubs.
Revenue at stores open at least a year is considered a key measurement for retailers because it excludes the effect of stores that open or close during the year.
Wal-Mart said that it expects earnings per share to be in the range of $1.22 to $1.27 in the current quarter. Analysts had expected $1.29 per share.