Wal-Mart, amid weak earnings and storms, to focus on smaller stores

If Wal-Mart Stores Inc.’s fiscal fourth-quarter earnings were any indication, the economy could use some shaping up.

The Bentonville, Ark., giant, the largest retailer in the world, said its profit for the three-month period ended Jan. 31, plunged 21% to $4.4 billion, or $1.36 a share, from $5.6 billion, or $1.67 a share, during the same period a year earlier.

The company’s earnings missed Wall Street’s expectations of $1.59 a share. The chain’s $128.8 billion in net sales, a 1.4% increase, also failed to hit forecasts of $129.9 billion.

Same-store sales, a gauge that strips out volatility by only considering the performance of stores open at least a year, slipped 0.4%, marking the measurement’s fourth straight quarter of declines.

Looking ahead, the retailer projected results that didn’t meet analysts’ expectations. The company anticipates that earnings in its current quarter will fall between $1.10 and $1.20 a share, lower than Wall Street’s $1.23-a-share projection.

For the full year, Wal-Mart predicted earnings per share of $5.10 to $5.45, compared with analysts’ forecasts a $5.56 a share.

In midmorning trading in New York, Wal-Mart stock was down 1.6%, or $1.22, to $73.63.

Wal-Mart blamed its soft numbers on several factors.

An extended spate of bad weather this winter kept many shoppers indoors. In the first two weeks of the current quarter, same-store sales have already tumbled as more than 200 stores closed during the height of the bitter-cold temperatures and stormy conditions.

The expiration on Nov. 1 of a temporary increase in government food stamp benefits shrank many Wal-Mart customers’ budgets, according to the chain. And the company said it continued to feel the sting of an increase in the payroll tax implemented in early 2013.

The chain’s “core low-to-moderate income consumer has not experienced meaningful wage gains and lacks the ability to increase discretionary spending,” wrote Retail Metrics Inc. analyst Ken Perkins in a note to clients.

Higher healthcare costs and January and February heating bills will also hurt the bottom line, he wrote.

Wal-Mart also endured “intense price competition in what was the most promotional holiday shopping season since 2008,” Perkins wrote.

Fourth-quarter earnings for all retailers are expected to decline 5.8%, though performance is likely to “rebound sharply” from the “lousy” holiday period.

The recent weakness seems to have compelled Wal-Mart toward a strategy shift.

The company said Thursday that it would accelerate its plans to open more Neighborhood Market and Wal-Mart Express stores. The units are 38,000 square feet on average — a fraction of the average 182,000-square-foot Wal-Mart supercenter.

In the fourth quarter, same-store sales at Neighborhood Market stores rose 5%.

Instead of opening 120 to 150 such stores during the current fiscal year as originally planned, Wal-Mart said it was more than doubling its plans and would start operating 270 to 300 of the units.

The company expects to open 115 new supercenters during the same period. Wal-Mart has more than 4,000 total stores in the U.S.

“Wal-Mart is not a business in crisis by any means, but the magnitude of the task facing Doug McMillon and David Cheesewright in their respective new roles is immense,” wrote Planet Retail analyst Stephen Springham in a note to clients.

McMillon replaced Mike Duke as Wal-Mart’s president and chief executive on Feb. 1, the same day that Cheesewright was named president and chief executive of Wal-Mart International.

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