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Wal-Mart Fails To Impress

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Wal-Mart Fails To Impress

Aug 19 2015, 07.36am GMT

STOCK.com

Reporting a quarterly drop in profit of 15% from the same quarter last year, Wal-Mart Stores Inc. also issued a profit guidance in respect of the rest of 2015 saying targets would not be met for the full year.

Wal-Mart has had to increase its cost structure in an effort to recapture market share in order generate in store sales growth. The costly measures put in place, or pending for implementation shortly, include increasing store trading hours as well as raising the hourly rate for its workers. The company attributes other cost increases to currency fluctuations on its foreign sales as well as increasing stock shrinkage problems.

Earlier this year, during April, Wal-Mart raised its minimum wage to $9.00 per hour saying that this would be increased to $10 for many workers by February 2016. The cost of the additional wages and shop hours, together with staff training, will be approximately 24 cents per share including an approximate figure of 8 cents a share in the third quarter.

The increase in spending has been successful as the company has increased the number of shoppers visiting its stores while customers are spending slightly more per store visit. The company also reports an increase in customer satisfaction ratings.

Other changes to increase store efficiency are to inventory management systems which will allow employees to speed up the restocking of the shelves from the sales floor rather than from the backroom. The company is also renegotiating its contracts with suppliers to reduce the amount spent on marketing in favor of product price reductions.

Doug McMillon, president and CEO of Wal-Mart said, “We’re pleased that the investments we’ve made are helping to improve our business. Even if it's not as fast as we would like, the fundamentals of serving our customers are consistently improving, and it's reflected in our comps and revenue growth.”

The numbers show that the second quarter profit of $3.48 billion fell from $4.09 billion the previous year while the EPS of $1.08 decreased from last year’s Q2 figure of $1.26 a share. Total revenue of $120.2 billion, was little changed from the previous year while the company sales constant currency revenue was $124.5 billion.

Wal-Mart issued a guidance saying that the expected full year fiscal earnings would be $4.40 to $4.70 a share, down from the earlier forecast of $4.70 to $5.05 a share. For the third quarter of 2015, the forecast EPS is in the range of 93 cents to $1.05.

The company lowered its forecast for its e-commerce business to a range between 15% and 20% from the previous forecast in the mid-twenties range. This forecast is still better than the Statista forecast which indicates an increase in e-commerce sales at 11% globally as well as in the U.S from 2015 to 2016. In addition, global e-commerce sales rose 16% in the second quarter compared to 22% in the same quarter a year earlier.

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