Wal-Mart cuts annual profit outlook as costs rise

Anne D'Innocenzio
Associated Press

Bentonville, Ark. — Wal-Mart Stores Inc. cut its annual earnings outlook Tuesday because of currency fluctuations and higher wages and investments in overhauling its stores are squeezing its profits.

The world’s largest retailer also reported an 11.4 percent drop in second-quarter profit, though an important sales measure rose for the fourth straight quarter.

Wal-Mart is facing challenges on all fronts, obstacles that have resulted in its shares falling 16 percent this year. Its low-income shoppers are still struggling in an economy that is slowly recovering. The company is also facing increasing competition from the likes of online king Amazon.com and dollar stores.

Wal-Mart has been doing a number of things to improve its results. It’s increasing its spending for its online operations to between $1.2 billion and $1.5 billion this year, up from $1 billion last year. It’s opening a string of fulfillment centers dedicated to e-commerce that should speed up delivery and put more items in one box. And it’s testing an unlimited free-shipping service for $50 a year, undercutting Amazon’s popular Amazon Prime, whose annual dues are $99.

Wal-Mart’s U.S. division, which accounts for 60 percent of its total sales, is undergoing a major overhaul under Wal-Mart’s new U.S. CEO Greg Foran. The company is trying to improve pricing and selection as well as beef up customer service. It promises tidier stores and an improved holiday shopping season. Earlier this year, it announced wage increases for hourly workers.

The company, based in Bentonville, Ark, earned $3.63 billion, or $1.08 per share, in the quarter ended July 31. That compares with $4.09 billion, or $1.26 per share, a year ago.

The results did not meet Wall Street expectations. The average estimate of 13 analysts surveyed by Zacks Investment Research was for earnings of $1.12 per share. The world’s largest retailer posted revenue of $120.23 billion in the period, beating Street forecasts. Eleven analysts surveyed by Zacks expected $120.06 billion.

Wal-Mart now expects full-year earnings to be $4.40 to $4.70 per share.

Shares slipped 47 cents to $71.91 in pre-market trading.