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Wal-Mart 2Q in line
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August 14, 2001: 9:12 a.m. ET
World's biggest retailer logs flat earnings on double-digit sales growth
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NEW YORK (CNNfn) - Wal-Mart Stores Inc. posted virtually flat second-quarter earnings Tuesday in line with Wall Street estimates and trimmed its third-quarter outlook as the world's biggest retailer logged double-digit sales increases, yet was hurt by the slowing economy.
For the quarter ended July 31, Bentonville, Ark.-based Wal-Mart (WMT: up $0.11 to $52.31, Research, Estimates), a component of the Dow Jones industrial average, earned $1.6 billion, or 37 cents a share, excluding a charge. That compared with earnings of $1.6 billion, or 36 cents a share, a year earlier.
Analysts on average anticipated a profit of 37 cents a share, according to earnings tracker First Call.
Including a charge related to the acquisition of Wal-Mart.com, the company earned 36 cents a share.
But the stock barely moved in morning trading following the announcement, rising just 15 cents at $52.35.
"It's product mix was unfavorable. They sold more food, more consumables, which means lower gross margins," said Ulysses Yannas, a retail analyst with Buckman, Buckman & Reid.
The company said during a pre-recorded announcement Tuesday that costs and expenses were rising at a faster rate than sales, and that achieving its goal of double-digit earnings and sales growth for the third quarter would be extremely challenging. As a result, the company lowered its third-quarter earnings guidance to 33 cents a share, a penny lower than the 34 cents a share anticipated by analysts, according to First Call.
"Our goal for the second half of the year remains double-digit earnings growth,. However, given the current economic environment this will be difficult to achieve," CEO Lee Scott said during the call. "We expect earnings growth in the second half will show improvement over the first half of this year as we leverage our sales and market share gains, but the growth may not meet our original goals."
Revenue in the second quarter grew 14.5 percent to $52.8 billion from $46.1 billion thanks in part to customers spending their tax rebate checks in the store, but that's short of the $58 billion Wall Street forecast, according to First Call.
Scott said that although customers spent about 25 percent of their rebate checks in the stores, they went for lower-priced items that carried low margins, which did little to boost profit. Higher margin items such as apparel did not log strong sales gains, but Scott said that could improve with what so far has been a sluggish back-to-school season.
The government's better-than-expected report on retail sales Tuesday pointed to resilient consumer confidence and spending levels.
The company also said it was forced to mark down prices more aggressively than in the past, which will put pressure on future earnings.
"It is a difficult retail environment. Customers are searching for value. Our customers expect us to have the lowest price, and we will we will not disappoint," Scott said.
Wal-Mart shares ended down $1.40 at $52.20 Monday.
"Although we were unable to convert all of our revenue growth to earnings growth, I am confidence we will leverage our top line growth in future periods," Scott said in a statement.
Discount chains have benefited during the recent economic slowdown as price-conscious consumers have shifted their spending from higher-end department stores and specialty shops to low-priced chains, and Wal-Mart has by far performed the best in the category, which also includes Kmart (KM: Research, Estimates) and Target (TGT: Research, Estimates) .
The company posted a 6 percent increase in July sales at stores open at least a year. In addition to consumer shift, Wal-Mart said it is also benefiting as Americans cash in their tax rebate checks in the store to buy things such as electronics.
However, discount chains have not been immune to the slowdown, as they have been forced to mark down prices more steeply than usual, which cuts into profit margins.
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In the second quarter, Wal-Mart's stores segment, including supercenters, reported a 4.1 percent increase in profit to $2.6 billion from $2.5 billion a year earlier.
The Sam's Club segment, the company's wholesale warehouse club store, posted an operating profit of $267 million compared with $240 million a year earlier, an 11.3 percent increase.
The international segment posted operating profit of $315 million compared with $232 million in the year-earlier period. 
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