Wal-Mart Cheers Investors With Revenue Growth, Upbeat Outlook--Update

By Joshua Jamerson 

Wal-Mart Stores Inc. on Thursday posted surprise revenue growth in the first quarter and offered an upbeat view for the second, bolstered by strength in its health and wellness segment.

Shares of Wal-Mart jumped 8.1% to $68.25 in premarket trading, as results were in contrast with several retailers that have reported weaker results recently.

Wal-Mart said its sales were helped by strength in U.S. segments such as health and wellness, apparel, and home and seasonal. More scripts at its pharmacies, along with branded drug inflation, led to mid-single digit comparable sales growth in the health and wellness unit.

More than half of Wal-Mart's sales come from its grocery business, which led analysts to believe the company could be insulated from the difficult apparel environment. But its grocery operations are also vulnerable to food deflation and pricing competition; grocery sales declined by low single-digits during the first quarter, as strong traffic in grocery was offset by deflation.

Wal-Mart said its general merchandise sales rose by low-single digits thanks to a "focus on basics."

The Bentonville, Ark., company has been spending heavily to get customers back into its stores. It has worked to better stock stores, improve efficiency and increase pay for its employees. But Wal-Mart has warned that those efforts would dent profits this fiscal year.

Indeed, profit slipped 7.8% in the first quarter, but it still topped the company's expectations.

Wal-Mart's results stand out from a list of retailers with disappointing starts to the year. On Wednesday, Target Corp. reported that consumers pulled back on spending, with its chief executive citing "an increasingly volatile consumer environment." Soft results from department stores like Macy's Inc. and Nordstrom Inc. illustrated shoppers' shift away from brick-and-mortar stores and sparked declines across the retail sector.

Retailers have been closing weaker locations and investing in e-commerce as consumers shift online shopping and fast-fashion chains. But the moves haven't been enough to counter weak demand.

Wal-Mart's operating, selling, general and administrative expenses climbed 6.3% to $24.09 billion in the quarter, in part due to efforts to beef up its online business.

"We are focused on building the e-commerce capabilities we need to drive growth to a higher level and deliver the seamless shopping experience for customers they desire," said Doug McMillon, Wal-Mart's chief executive.

Off-price chain TJX Cos. and home-improvement stores like Home Depot Inc. have reported healthy traffic and spending at their locations, suggesting that consumers are willing to spend but are being more selective about where.

In the first quarter, sales at Wal-Mart's existing U.S. stores ticked up 1%, marking the seventh straight quarterly gain after a long stretch of declines. Analysts polled by Consensus Metrix expected 0.5% growth in the metric.

The number of people visiting Wal-Mart's stores rose 1.5%.

Over all, Wal-Mart reported a first-quarter profit of $3.08 billion, or 98 cents a share, down from $3.34 billion, or $1.03 a share, a year earlier. Wal-Mart had forecast earnings of 80 cents to 95 cents a share. Analysts anticipated 88 cents.

Revenue rose 0.9% to $115.9 billion, above the $113.2 billion analysts polled by Thomson Reuters had forecast. Excluding currency impacts, revenue rose 4%.

For the second quarter, the company said it expects earnings between 95 cents and $1.08 a share. Analysts were expecting second-quarter profit of 98 cents.

Write to Joshua Jamerson at [e-mail]

(END) Dow Jones Newswires

May 19, 2016 08:35 ET (12:35 GMT)

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