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February 3, 2014

US: Wal-Mart warns on FY profits

Wal-Mart has said its full-year earnings could miss previously announced forecasts.

Wal-Mart has said its full-year earnings could miss previously announced forecasts.

The US retail giant had previously said it expects underlying fourth-quarter earnings per share to total US$1.60-1.70, with full-year EPS anticipated to come in at $5.11-5.21. Including the impact of store closures in China and Brazil and the group’s move to exit its Indian joint venture, Wal-Mart had forecast fourth-quarter EPS to total $1.50-1.60.

However, in a release to the market on Friday (31 January) CFO Charles Holley said the group now anticipates earnings to be “at or slightly below the low end of our range”.

The company said earnings will be hit by a number of additional items. Wal-Mart has been the subject of scrutiny in Brazil over its tax bill. It is contesting some of the rulings but has set aside resources to cover the payments. The retailer said it has also received a “significant increase” in employment claims in the country, which will lead to further charges.

In China, costs linked to store closures will hit its bottom line. In the US, restructuring and store closures at its Sam’s Club warehouse chain will also affect earnings. In total, these new items are expected to reduce earnings per share by $0.15.

The company also hinted of top-line woes in the US. It revealed its Wal-Mart stores and Sam’s Club are expected to report “slightly negative” comparable sales during its fourth quarter.

However, Wal-Mart shares closed slightly higher on Friday, rising to $74.68 from an open of $73.92. 

William Blair Equity Research analyst Mark Miller cut 2014 earnings expectations by $5.09 a share. “Shares trade at a P/E multiple of 13.4 times our calendar 2014 EPS estimate. While valuation remains modest, we believe decelerating top-line trends and negative estimate revisions are likely to keep shares in check,” he wrote in an investor note. 

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