Wal-Mart said today (15 August) its sales outside the US were below expectations, with consumer spending across its markets under pressure.
Doug McMillon, CEO of Wal-Mart’s international operations, said consumers in both mature and emerging markets had curbed their spending, leading to softer-than-expected sales in the retailer’s second quarter.
The international results were a factor in Wal-Mart cutting its forecasts for annual sales and earnings.
International net sales in the three months to the end of July were up 2.9% to US$33bn. Foreign exchange did weigh on sales. At constant currencies, net sales were up 4.9%.
However, McMillon said: “Across our international markets, growth in consumer spending is under pressure,” McMillon said.
Nevertheless, he added: “While this creates a challenging sales environment, we are the best equipped retailer to address the needs of our customers and help them save money. We expect the third and fourth quarters to be better than our results in the first half, and we are working hard to deliver operating expense leverage for Walmart International.”
International operating profit from Wal-Mart’s operations outside the US slid 1.3% to $1.47bn. At constant currencies, however, operating income inched up 0.4%.
Nevertheless, a non-tax charge of $52m weighed on profits. McMillon said Wal-Mart’s international operating income would have been up 2.2% without the charge.
In the UK, Wal-Mart’s Asda arm saw operating income increase 7.5% despite a slowing in like-for-like sales in the second quarter.
In Canada, income and sales were up but softer entertainment sales hit comparable-store sales, which dipped 0.4%.
Further south in Brazil, Wal-Mart posted higher sales but they were affected by the change in when Easter fell year-on-year. With operating expenses growing faster than sales, it meant Wal-Mart’s Brazilian arm made an operating loss in the quarter.
Sales and income rose in Central America, although profits dipped in Mexico.
In China, sales climbed although gross profits were lower as Wal-Mart invested in price and in its operations to improve logistics and bolster food safety.
However, in Japan, sales and gross profit fell. Soft consumer spending hit sales, although Wal-Mart said it outpeformed the market. Its investment in price hit profits.
For the first six months of the year, operating income from Wal-Mart’s international operations fell 2.9% to $2.72bn. Sales were up 2.4% at $116.22bn. On a constant-currency basis, operating income dipped 0.9% to$2.78bn, while net sales rose 4.9% to $67.24bn.
Alongside its results, Wal-Mart revised its full-year forecast for group sales and earnings.
The retailer now expects net sales to grow between 2% and 3% for the full year versus its previous range of 5% to 6%. EPS is forecast between $5.10 and $5.30 per share from a previous forecast of $5.20 to $5.40.
Nonetheless, CEO Mike Duke offered an optimistic outlook for the remained of the year: “I’m encouraged by our position to execute in the second half of the year, particularly with the steps we’re taking to improve performance. There are areas of our business where we can do a better job, and we will. I’m confident in our associates’ abilities to deliver for our customers with EDLP and for shareholders with improved expense savings.”
Shares in Wal-Mart were down 2.4% at $74.57 at 12:58 ET.
Click here to view the full earnings release.