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Wal-Mart Stores Inc. (NYSE: WMT) stock was up by more than 5% in trading today (Thursday) after the company reported stronger than expected earnings this morning following similar reports made yesterday by Target Corp.
Wal-Mart reported earnings per share of $1.09 compared to $0.97 per share in the same quarter last year. The average estimate for this quarter's earnings was $1.04 per share.
Increased sales were a major factor in the positive earnings report. Net sales rose 8.5% to almost $113 billion. Same store sales in the U.S. rose 2.6%, the biggest gain in three years for Wal-Mart in its U.S. market.
In a pre-recorded statement on Thursday, Wal-Mart's CEO Mike Duke commented on the ongoing Mexico bribery investigation saying, "We will take appropriate action if violations of the law or our policies occurred."
Same store sales in Mexico grew 5.6% this quarter, second only to Brazil's same store growth of 8.6%. Wal-Mart reported that customer traffic in Mexico increased by 2.3% while the average customer spent 3.3% more per visit.
The allegations appeared in a New York Times article on April 21, so it is hard to gauge how much impact the controversy will have as the numbers reported today go through April 30.
Wal-Mart's U.S. Growth Problems
Wal-Mart's earnings are a good measure of the retail economy in the U.S. The giant discounter draws almost 10% of all non-automotive spending in the U.S.
While Wal-Mart remains the leading discount retailer in the U.S. it has lost some of its advantage over other retailers. Throughout the recession Wal-Mart performed better than most companies due to its discount offerings but consumers are now either feeling more comfortable about increasing their spending or are turning to other discount retailers such as Target Corp. (NYSE: TGT).
Meanwhile, Wal-Mart is trying a new game with its U.S. stores.
Wal-Mart Express Stores
The Wall Street Journal reported today that Wal-Mart is in the pilot phase of introducing "Wal-Mart Express" stores. These stores are much smaller than the popular supercenter, normally around only 15,000 square feet.
Wal-Mart hopes these smaller stores located in urban areas will help accelerate its growth in the U.S. and help Wal-Mart compete with other discount and dollar-store chains.
Their competitors have already launched smaller locations in a much more aggressive manner than Wal-Mart. Dollar General, Dollar Tree, and Family Dollar Stores Inc. have opened nearly 2,000 locations in the past year.
Currently Wal-Mart has fewer than a dozen Express stores open.
Wal-Mart has had success with smaller stores outside the U.S. and hopes it can have similar results in the U.S. Last June at its annual meeting Wal-Mart's U.S. store chief Bill Simon said he would like Express Stores "to deliver the same experience that a supercenter can deliver, only in 15,000 square feet."
With fewer than a dozen Express stores open it seems that Wal-Mart is reluctant in its efforts to move away from the supercenter mentality.
Target plans to open three new "City Target" stores this summer in Chicago, Seattle and Los Angeles. Target's stock was up slightly yesterday on positive earnings.
While several other big-box retailers including Best Buy Co. Inc. (NYSE: BBY), Staples Inc. (Nasdaq: SPLS) and Barnes & Noble Inc. have closed stores, Wal-Mart has added or remodeled more than 120 supercenters last fiscal year.
Wal-Mart (WMT) Stock
Investors should be satisfied with the earnings report announced today but should pay attention to how Wal-Mart can accelerate its growth at home.
Wal-Mart's earnings follow a week of mixed reports for retail companies. Target and Wal-Mart beat estimates while J.C. Penny (NYSE: JCP), Abercrombie and Fitch Co. (NYSE: ANF) and Staples all had less than stellar results. JC Penny's stock yesterday finished down almost 20%, while Abercrombie fell 13%.
Overall it seems that retail stores, especially discount stores, were helped by the warm winter and increased consumer spending in the first few months of 2012. However it will be hard to continue this growth with constant uncertainty looming over the economy.
Related Articles and News:
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- Money Morning:
Target Corp. (NYSE:TGT) Has Dethroned Wal-Mart as the Discount King
- Bloomberg News:
U.S. Retail Sales Cool After Warm-Weather Spree: Economy