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Wal-Mart's profit falls, beats forecast

1Q online sales, store traffic perk up

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Wal-Mart Stores Inc.'s profits declined 1.3 percent during the first quarter of its fiscal year, but an e-commerce surge and strong sales across its U.S. stores showed the company continues to attract shoppers during a challenging time for other retailers.

The Bentonville-based company reported net income of $3.04 billion, or $1 per share, for the quarter that ended April 30. Earnings were an improvement from 98 cents a year ago and beat analyst estimates of 96 cents, according to Yahoo Finance. Revenue for the quarter also increased 1.4 percent to $117.5 billion from a year ago and just missed analyst projections of $117.7 billion.

Wal-Mart's performance was highlighted by a 1.4 percent growth in same-store sales -- or sales in stores open for at least a year --and a 1.5 percent increase in traffic across its domestic locations. The company's e-commerce sales also jumped 63 percent in the quarter, reflecting Wal-Mart's efforts to grow its online business.

"We delivered a solid first quarter and we're encouraged by the start of the year," Wal-Mart Chief Executive Officer Doug McMillon said in a statement. "We're moving faster to combine our digital and physical assets to make shopping simple and easy for customers. Our plan is gaining traction."

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Shares of Wal-Mart stock reached a 52-week high during Thursday's trading and closed at $77.52, up $2.40.

The results were a rare bright spot during a quarter in which other brick-and-mortar retailers struggled to attract shoppers. Department stores J.C. Penney, Macy's and Dillard's reported disappointing results earlier this month. On Wednesday, Target reported an 8 percent increase in profit, although its same-store sales fell 1.3 percent.

Wal-Mart believes its successful quarter hinged on ongoing efforts to improve and integrate its in-store and e-commerce businesses. The retailer has made heavy investments to clean up its 4,700 U.S. stores, lower prices, expand its digital capabilities and bulk up online offerings.

"They've done an outstanding job here in the last two years plus of taking this business from one that seemed like it was on the decline and on the defense against Amazon to, I feel like they're on the offense," said Brian Yarbrough, a retail analyst with Edward Jones. "There's a lot of bright spots."

Wal-Mart's U.S. same-store sales increased for the 11th-straight quarter. Wal-Mart also reported its 10th-straight quarter of traffic increases.

The retailer reported $75.4 billion in net U.S. sales, a 2.9 percent increase from a year ago. While general merchandise sales fell during the first quarter largely because of delays in tax-refund checks, Wal-Mart reported improved grocery sales.

"Their strategy of being aggressive on price and investing in it is driving consumers into the store, particularly on the grocery side," said Ken Perkins, president of research firm Retail Metrics LLC. "That is impressive in this environment where so few retailers are able to produce increased traffic."

Wal-Mart, which also has overhauled its e-commerce business under Marc Lore, said online sales contributed 0.8 percentage point to the first-quarter same-store sales increase. Wal-Mart now offers 50 million items -- both first- and third-party -- on Walmart.com. It offered 10 million a year ago.

"We're seeing that customers are placing more orders, they're coming back more often and they're spending more," said Lore, the company's U.S. e-commerce chief.

Lore, who joined the company as part of last year's $3.3 billion acquisition of Jet.com, said the retailer's move to free two-day shipping without a membership fee and an increase in repeat orders played a big role in the 63 percent sales surge. Growth was 29 percent in the fourth quarter.

"E-commerce is definitely making a difference," Yarbrough said. "Marc Lore is doing a lot of great things for this business. E-commerce is way ahead of where it was this time last year just in the short eight or nine months he's been running it."

Wal-Mart's quarter did include e-commerce sales from acquisitions (Jet.com, ShoeBuy, Modcloth and Moosejaw). But Lore and McMillon stressed most of the gains were "organic" and came from Walmart.com. The retailer doesn't intend to buy its way to e-commerce success, McMillon said, but the purchases "are helping us speed some things up."

He still sees plenty of room for improvement despite the first-quarter progress.

"We need to scale our e-commerce business further and see some additional strength in our [comparable-store sales] to deliver the results we know we're capable of," McMillon said during a pre-recorded call.

Net sales at Sam's Club, the company's warehouse division, increased 2.8 percent to $14 billion in the quarter. Same-store sales -- excluding fuel -- climbed 1.6 percent, the fifth-straight quarter of increases. Traffic in the club stores also increased 1.1 percent.

The international business division reported net sales of $27.1 billion in the first quarter, a decrease of 3.5 percent. The company reported seven of its 11 international markets reported same-store sales increases during the quarter. The division was led by results from China and Mexico.

Wal-Mart expects its U.S. same-store sales to increase between 1.5 percent to 2 percent in the second quarter. The company also projects earnings per share of $1 to $1.08 in the quarter.

Wal-Mart returned $3.7 billion to shareholders through dividends and share buybacks in the quarter.

"We feel good about the momentum across the business and we expect progress to continue," Chief Financial Officer Brett Biggs said. "As a company, we're moving with speed and executing against the strategy we've outlined."

A Section on 05/19/2017

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