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BENTONVILLE, Ark. -- When the bar's set high, it's a long way down. Wal-Mart Stores, Inc.'s net sales for the first quarter ended April 30 were $70.9 billion, an increase of 9.5 percent over the first quarter of fiscal 2005, and net income for the quarter was $2.5 billion, a rise of 13.6 percent from $2.2 billion in the year-ago period.
But that wasn't good enough for the market, as analysts called the performance a shortfall for the quarter, and investors spurred the largest decrease in the price of Wal-Mart's shares in over five months.
Earnings per share were 58 cents, vs. 50 cents for the prior-year first quarter. First-quarter earnings in fiscal 2006 were favorably affected by two items coming to $145 million after tax, or three cents per share: a rise attributable to favorable tax resolutions of $77 million, and positive legal developments of $68 million after-tax. Excluding these items, earnings per share were 55 cents. On average, analysts had predicted earnings per share of 56 cents.
Wal-Mart president and c.e.o. Lee Scott said in a statement: "We achieved record results in the quarter. Yet with higher gasoline prices and a cooler and wetter spring than normal, we missed our plan. We are making the necessary adjustments and I anticipate better results in the second half of the year."
Meanwhile Wal-Mart's chief rival, Target, slightly bested analysts' estimates, with first-quarter net profit up 15 percent to $494 million.
In addition to the reasons cited by Scott for his company's underwhelming performance, observers attributed Target's gain over Wal-Mart to such factors as Target's "more fashionable and profitable merchandise," as Bloomberg News put it.
Wal-Mart's total U.S. comparable sales for the quarter went up 2.9 percent, breaking down to a 2.8 percent comp increase for Wal-Mart Stores and 3.5 percent comp increase for Sam's Club.
Wal-Mart Stores, including supercenters, had first-quarter sales of $47.64 billion, an increase of 9.3 percent compared with $43.57 billion in the year-ago period. Sam's Club posted f sales of $9.16 billion, a rise of 5.9 percent over the $8.64 billion. International stores had sales of $14.11 billion for the most recent quarter, a gain of 12.4 percent as opposed to $12.55 billion in the first quarter of fiscal 2005. All divisions also reported higher "segment operating income" (income before net interest expense, income taxes, unallocated corporate overhead, and minority interest) over the year-ago period.
What also darkened Wall Street's view of the might retailer was Wal-Mart caution about its second-quarter profits, which it said would also fail to meet expectations. The company said its earlier full-year earnings outlook is "still possible, but far more difficult to achieve."
Wal-Mart operates Wal-Mart Stores, supercenters, Neighborhood Markets and SAM'S CLUB locations in the United States. Internationally, the company operates in Argentina, Brazil, Canada, China, Germany, Japan, Mexico, Puerto Rico, South Korea, and the United Kingdom.