Wal-Mart Stores Inc. (WMT) managed to maintain their short spurt of improving U.S. sales, while the stronger U.S. dollar (USD) and the cost of higher wages however, pushed profits lower in the first quarter.
This small increase in U.S. sales for the first 3 months of 2015 marked the 3rd straight increase for the largest retailer in the world. This is a clear indication that Doug McMillon, the company’s recently appointed chief executive, has been focusing on putting an end to a long slide in Wal-Mart’s home market. The company managed to draw more customers to its stores for the second consecutive quarter, but only spent a fraction more than recorded a year-ago.
Because of the dollar strength (USD), however, the company’s international sales were negatively impacted, causing a drop in sales overall.
On Tuesday, McMillon admitted than the company had room for improvements, stating on an earnings call that Wal-Mart is not where it wanted to be in every store.
Overall the company’s profits dropped 7% to $3.34 billion, while revenues also decreased 0.4% to $114.8 billion. In premarket trading, Wal-Mart shares declined 2.4%.
Although the results indicated that Wal-Mart is making some progress, it also marked yet another disappointing show from retailers with concerns that the economy struck a soft patch at the start of this year. In recent months, overall retail sales data from the government has often been down or flat, while stores like Macy’s Inc. (NYSE: M) also reported softer sales.
McMillon also indicated that U.S. customers are rather using tax refunds and extra money from low gas prices to save or to pay down debt. They are also using the extra funds for day-to-day expenses, he said.
Despite Wal-Mart’s battle with flat or dropping sales, it managed to gain slightly in two quarters at the end of 2014, attributed to operational improvements, a drop in unemployment as well as lower gas prices.
Same-store sales in the U.S. moved up 1.1% in the recent quarter, excluding fuel. This figure was below analyst estimates of a 1.5% rise.
In a bid to improve domestic business, the company is working on store operational improvements like offering better customer services and fresher produce, which Wal-Mart admits has negatively affected sales in the past couple of years, while pressuring suppliers to drop their prices lower.
The factors that have contributed to weaker profits are the company’s investments in its online business and announcements made that it would increase minimum employee wages.
The sales for online grew 17%, yet this is slower than the previous year, but quicker than sales overall.
Wal-Mart has forecasted the earnings for the current quarter at $1.06 - $1.18 per share. Meanwhile, Thomson Reuters polled analysts forecasted $1.17 per share in earnings.
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