Wal-Mart sees profit jump, but outlook subdued

NEW YORK Wal-Mart Stores Inc. (WMT) offered a weak business outlook Thursday as new economic challenges for its low-income shoppers start to take a toll.

The world's largest retailer reported an 8.6 percent increase in profit for the fourth quarter which includes the crucial holiday season. But higher gasoline prices, late tax refunds and the payroll tax increase have it wary about the coming year.

Wal-Mart, based in Bentonville, Ark., is considered an economic bellwether because the retailer accounts for nearly 10 percent of nonautomotive retail spending in the U.S. Low- and lower-middle-income people have continued to struggle even as the housing and stock markets improve.

Wal-Mart's latest results, which cover the three months that ended Jan. 31, show that gas prices and the payroll tax increase of 2 percentage points are shrinking the little disposable income many of the chain's customers have.

The company said that after a strong start to the holiday season, the first three weeks of December were weak, and business has been volatile since then. That's despite the company's aggressive tactics to win over shoppers with low prices across the store and other incentives like layaway.

"We know there are challenges ahead, but we believe our strong financial position ... will continue to produce strong sales and returns for our shareholders," Chief Financial Officer Charles Holley said in statement.

Investors were bracing for a subdued report after a Bloomberg report published last week leaked an email from a top executive characterizing the first two weeks of February as "a total disaster."

Wal-Mart acknowledged in Thursday's report that February started "slower than planned" but noted that it was largely due to the delay in tax refund checks.

For the current quarter, Wal-Mart expects revenue at stores open at least a year at its U.S. namesake business to be flat with last year. That represents a slowdown from the 1 percent increase in the fourth quarter.

The results come a little more than a year after Wal-Mart's U.S. namesake business turned a corner by reemphasizing low prices and restocking stores with thousands of basic items that it had gotten rid of in an overzealous bid to reduce clutter. Wal-Mart's U.S. namesake business accounts for about 60 percent of its total business.

During the third quarter of 2011, the division reversed nine straight quarters of declines in revenue at stores open at least a year, considered a key measure of a retailer's health. The U.S. namesake business has now recorded six consecutive quarters of gains since the division rebounded. That growth pace has slowed in recent quarters as it's getting harder for Wal-Mart to lap increases from year-ago gains.

The fourth-quarter gain is below the 1.5 percent increase analysts polled by Thomson Reuters expected. Overall, revenue at stores open at least a year rose a modest 1.2 percent, including a 2.3 percent gain at Sam's Clubs. Analysts had expected a 1.8 percent increase.

But the tough economy is now taking a toll on Sam's Clubs, which started to step up discounting in the third quarter to lure in small-business owners. Those moves hurt profit margins in the fourth quarter. Operating income sank 3.5 percent in the latest quarter.

International, Wal-Mart is facing continued challenges and is focusing on increasing profitability in countries like Brazil and China. The company said that the United Kingdom was particularly tough.

The company is also still grappling with bribery charges stemming from its operations in Mexico that surfaced last April. The allegations are that it 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.

The company has launched its own investigation and is working with government officials in the U.S. and Mexico. Last November, the retailers said in a filing with the Securities and Exchange Commission that it was looking into potential U.S. bribery law violations in Brazil, China and India.

During a pre-recorded call to investors, CEO Mike Duke said that the company has "made significant improvement to our compliance programs around the world in 2013 and took a number of specific actions with respect to the processes, procedures and people."

Wal-Mart says it earned $5.6 billion, or $1.67 per share, in the quarter ended Jan. 31. That's up from $5.16 billion, or $1.50 per share, a year earlier.

Net sales rose 3.9 percent to $127.1 billion.

Earnings topped estimates of $1.57 per share, but net sales fell short of the $127.8 billion estimate.

The company says it expects earnings per share to range from $1.11 per share to $1.16 per share for the first quarter. That's below analysts' expectations for a $1.18 per share estimate, according to FactSet.

For the year, Wal-Mart expects earnings per share between $5.20 and $5.40 per share. Analysts expect $5.38 per share, according to FactSet.

Wal-Mart also raised its quarterly dividend by 18 percent to 47 cents.