NEW YORK (AP) — Wal-Mart Stores Inc.'s second-quarter net income rose 5.7 percent as the world's largest retailer is wooing back frugal shoppers across the globe by doubling down on low prices.
The discounter also said Thursday that it's raising its full-year profit outlook. But quarterly revenue that came in short of expectations disappointed investors, who sent the company's stock down 3 percent to $71.99 in premarket trading.
Wal-Mart's results are considered an economic bellwether because the company draws nearly 10 percent of nonautomotive retail spending in the U.S. In its latest report, the discounter, based in Bentonville, Ark., said that its low-income shoppers are still having trouble stretching their dollars to the next payday. But Wal-Mart's focus on rock-bottom prices is paying off.
Wal-Mart has had to work hard to get shoppers back. The stores, which thrived during the recession as more well-off people started shopping there, then struggled as their core low-income customers were hit hard by lingering joblessness and other challenges in a slow economic recovery. Adding to that, Wal-Mart's U.S. stores, which account for 60 percent of the company's revenue, had turned off shoppers by veering away from its "everyday low prices" strategy and getting rid of popular merchandise.
But Wal-Mart last year began adding back 10,000 products and refocused on keeping prices low throughout the store, backing the strategy with TV campaigns. It has done that by cutting expenses and passing some of the savings on to customers. As a result, revenue at Wal-Mart's U.S. division rose 3.8 percent to $67.35 billion in the latest quarter.
Revenue at stores open at least a year — considered a key measure of a retailer's health because it excludes the impact from stores that open and close during the year — rose 2.2 percent in the division, excluding fuel. The figure, which beat the 2.1 percent Wall Street estimate, marks the fourth consecutive quarterly gain for the division after nine straight quarters of declines.
Customer traffic increased for the third straight quarter, the company said.
For the overall U.S. business, revenue at stores opened at least a year rose 2.5 percent, including a 4.7 percent increase at the company Sam's Club warehouses. Analysts had expected 2.6 percent.
"The paycheck cycle remains pronounced in the United States and in our international markets, "Mike Duke, Wal-Mart's president and CEO, said in a statement. "Given continuing economic pressures, we believe that our price leadership and value are growing in importance to customers across income levels."
Wal-Mart's international business, which produces more than a quarter of its revenue, has remained strong, but the company is striving to make it more profitable. Wal-Mart is focusing on improving its business in Brazil and China. The company's international business increased 6.4 percent to $32.01 billion in the quarter. Even in Britain, which has been grappling with a recession, Wal-Mart has said it has seen shoppers flocking to its stores because of its low prices.
Wal-Mart reported net income of $4.02 billion, or $1.19 per share, for the quarter ended July 31. That compares with $3.80 billion, or $1.09 per share, a year ago.
Revenue excluding membership fees at Sam's Club rose 4.5 percent to $113.53 billion.
Analysts had expected earnings of $1.17 per share on revenue of $114.63 billion.
The company said it expects third-quarter net income between $1.04 per share and $1.09 per share. Analysts had expected $1.05. For the full year, the company now expects earnings per share to be in the range of $4.83 to $4.93. That is up from Wal-Mart's original forecast of $4.72 to $4.92 per share. Analysts had expected $4.93.
The company continues to deal with allegations of bribery in its Mexico operations, which surfaced in late April and could threaten momentum in its international business, Wal-Mart's fastest-growing division. The company has launched its own internal investigation into the matter and is working with government officials in the U.S. and Mexico. At the company's annual meeting in June, company officials pledged that they will get to the bottom of the allegations. Wal-Mart has also been overhauling its compliance program.
But in the latest blow, two U.S. congressmen — Reps. Henry Waxman and Elijah Cummings — made public this week letters to Duke suggesting the company may have had problems with money laundering and tax evasion. Walmex, Wal-Mart's Mexico division, said in a statement that "it has no knowledge that (it) is being investigated by Mexican authorities concerning these issues."
Still, investors, who pushed Wal-Mart's stock down right after the allegations surfaced in late April, had sent shares up 25 percent since mid-May.