Wal-Mart posts first profits fall in a decade

Click to follow
The Independent Online

Wal-Mart, the world's biggest retailer, posted its first fall in profits for a decade and warned that the US consumer is increasingly worried about high petrol prices.

Low-paid Americans, Wal-Mart's core customers, are making fewer trips to the supermarket, and the company has not yet proved it can win higher-income customers with more upmarket ranges of men's fashion and luxury foods.

Wall Street sent Wal-Mart's shares lower on yesterday's results, which also revealed that losses had spiralled at the company's German and South Korean operations, which it has recently sold. Asda, the UK chain which is now Wal-Mart's sole European outpost, was also disappointing, the company said, because competition from Tesco and other rivals was forcing it to drive prices lower.

Overall, the group's sales for the three months to 31 July were up 11 per cent to $85.4bn (£45.1bn), but missed the $86.2bn average estimate of analysts. Net income dropped 26 per cent to $2.08bn. The last time the company posted a profit decline was in 1996.

The main reason for the fall was a $863m charge associated with the sale of its 85 German stores, but analysts were more concerned by the results from the main US business. Lee Scott, its chief executive, admitted Wal-Mart was facing tougher times.

"We are, quite honestly, disappointed with the performance of Wal-Mart US," he said. "Some of the same issues affecting our customers, such as high utility costs and gas prices, are impacting corporations like Wal-Mart as well."

Wal-Mart has been trying to extend its appeal to higher-income shoppers and has been sprucing up its stores and introducing more expensive clothing, electrical items and some luxury foods. It admitted yesterday that the disruption from some 200 store refits so far this year - and from 1,800 minor refurbishment projects over an 18-month period - was causing disruption for customers.

"The quality of Wal-Mart's second-quarter earnings was low," JP Morgan analyst Charles Grom said, and margins declined sharply. If the German and Korean stores had been included in the headline earnings number, rather than stripped out as "discontinued" operations, earnings would have been a weaker-than-expected 69 cents per share, Mr Grom said.