Wal-Mart Attributes Higher Quarterly Profits to Increased Wages

Wal-Mart Attributes Higher Quarterly Profits to Increased Wages
Image credit: Joe Raedle | Getty Images

Wal-Mart Stores Inc. on Thursday reported a higher-than-expected quarterly profit as sales in the U.S. market rose, an improvement the retailer attributed in part to its increasing wages, and its shares jumped nearly 8 percent.

Excluding special items, earnings per share came to 98 cents in the first quarter ended on April 29, exceeding the analysts' average estimate of 88 cents, according to Thomson Reuters I/B/E/S.

Wal-Mart said sales at U.S. stores open at least a year rose 1 percent, excluding fuel price fluctuations. That marked the seventh straight quarterly rise and was stronger than market expectations for an increase of 0.5 percent, according to research firm Consensus Metrix.

The company's performance bucked a string of weak results by competitors. On Wednesday, rival Target Corp. gave a cautious outlook and reported a lower-than-expected rise in quarterly sales due to unseasonable weather and soft demand.

The relatively upbeat results suggest Wal-Mart may be benefiting from its $2.7 billion investment to increase entry-level wages and in training of its workforce. It said customer service scores were improving and that store visits rose 1.5 percent in the quarter.

"Overall a pretty strong quarter," Chief Financial Officer Brett Biggs said in an interview. “We are very pleased with the traffic increases, and I think that goes along with what we are seeing with customer experience scores that continue to improve.”

Quarterly revenue rose 0.9 percent to $115.9 billion despite a $3.5 billion hit from a stronger dollar, which reduces the value of overseas sales.

Operating income dropped 7.1 percent to $5.3 billion, reflecting the impact of boosting the company's minimum wage to $10 an hour and investing in automated warehouses dedicated to filling online orders.

On the negative side, online sales growth again decelerated, to 7 percent in the first quarter from 8 percent, 10 percent, 16 percent and 17 percent in the previous periods.

Biggs said ecommerce sales grew faster in the U.S. market than overseas, but the overall performance fell short of its objectives. Wal-Mart has recently suffered from sluggish online demand in China and Brazil.

Shares of Wal-Mart were trading at $68.15 before the market opened, up from Wednesday's close of $63.15.

(Reporting by Nathan Layne in Chicago; Editing by Lisa Von Ahn)

Latest News and Headlines from Reuters