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June 29, 2017

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Wal-Mart lowers forecast, gears up e-commerce

WASHINGTON--Wal-Mart Stores lowered its 2014 profit outlook Thursday as it turns toward online sales amid weakness in its key U.S. market, still struggling with a fragile economy.

The world's largest retailer posted a slight profit rise and better-than-expected sales for the second quarter, which ended July 31.

Wal-Mart cut its 2014 earnings per share forecast to US$4.90-US$5.15, from the prior estimate of US$5.10-5.45, citing investments in e-commerce and higher health care costs than previously anticipated.

The outlook was lower than what analysts had expected.

The Bentonville, Arkansas-based company reported net income of US$4.09 billion in the quarter, up 0.6 percent from a year ago. Adjusted earnings per share were US$1.21, matching Wall Street estimates.

Net sales beat expectations, rising 2.8 percent year-over-year to US$119.33 billion. Total revenue rose 2.8 percent to US$120.1 billion.

Doug McMillon, Wal-Mart's president and chief executive, said the discount retailer had clocked up encouraging performances in its international business, its new small-format "Neighborhood Market" stores in the U.S. and in e-commerce.

But U.S. comparable-store sales — sales in stores open at least a year — were flat in the last quarter.

"We wanted to see stronger comps in Walmart U.S. and Sam's Club, but both reported flat comp sales. Stronger sales in the U.S. businesses would've also helped our profit performance," McMillon said in a statement.

Same-store customer traffic at Walmart U.S., the company's largest chain, fell 1.1 percent, while traffic at membership chain Sam's Club rose 0.3 percent.

For the current quarter, Wal-Mart said it expects U.S. sales to be "relatively flat."

Wal-Mart is facing a sluggish retail market in the U.S. amid minimal wage growth and high unemployment as the economy still struggles to recover five years after exiting severe recession.

Greg Foran, the head of Walmart U.S. since early August, said that the most notable operating headwind in the second quarter came from health-care costs, which increased US$180 million from a year ago, "well above our initial estimates."

Foran, who is in charge of more than 4,000 Walmart stores and 1.3 million employees, said that health-care costs were expected to grow more than US$500 million for the fiscal year ending January 31.

For the quarter, sales gains were made by all the company's divisions, with Walmart International pulling in the largest increase at 3.1 percent, topping Walmart U.S. 2.7 percent rise.

E-commerce in Focus

Global e-commerce sales grew about 24 percent in the quarter. The company said its four most important markets — the U.S., Britain, China and Brazil — saw double-digit growth.

"We remain focused on price investment across all our markets and expect to continue driving improved comp performance,' said David Cheesewright, Walmart International president and CEO.

"I am pleased with the trends in many of our markets, which were driven by a continued focus on being the lowest cost operator."

"Our investments in e-commerce and mobile are very important, as the lines between digital and physical retail continue to blur. Our customers expect a seamless experience, and we're working to deliver that for them around the world," McMillon said.

He said the company would invest an additional US$160 million in e-commerce.

To lure more customers to its websites and better compete with online retail giant Amazon, Walmart recently snapped up companies specialized in data analysis and online marketing, and has begun rolling out a global technology platform.

The company just launched an online price-comparison app, Savings Catcher, to allow customers to get back the difference they paid when they find a local competitor offers a lower advertised price.

Shares in Dow component Wal-Mart rose 0.5 percent to close at US$74.39 on the New York Stock Exchange.

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