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Walmart says strategy working, reaffirms commitment to EDLP

BENTONVILLE, Ark. — Despite the absence of top line growth at Walmart’s U.S. stores division, second quarter earnings grew 12.4% to $1.09 and came in a penny ahead of analysts’ estimates, which was enough for the company to narrow and increase the range of its full year profit forecast.

Full year earnings per share are now expected to fall within the range of $4.41 to $4.51, which is a tighter window and a penny higher than the guidance of $4.35 to $4.50 provided back in February when fourth quarter results were released. Total company sales for the second quarter increased 5.5% to $108.6 billion, aided by a $2.3 billion currency exchanged benefit, and profits increased 5.7% to $3.8 billion.

The company’s profit performance is noteworthy given the ongoing difficulties with the U.S. stores division where a 0.9% same-store sales decline was the ninth consecutive quarter of negative comp growth and came on top of a prior year decline of 1.8%.

Wal-Mart Stores president and CEO Mike Duke said he was encouraged by the sales improvement in the United States, which increased sequentially each month within the quarter.

“In fact, this was the best quarterly performance since the third quarter of fiscal 2010,” Duke said. “We’re committed to delivering positive comp sales by widening the gap on price, and we have a specific plan to deliver EDLP to every customer.”

 Also sounding an optimistic tone was Walmart U.S. president and CEO Bill Simon who said he was encouraged by sales momentum from the second quarter.

“Our grocery and health and wellness business, representing two-thirds of our sales continued to deliver positive comps,” Simon said. “Our hardlines and apparel businesses are improving.”

Sales at the stores division increased 0.4% to nearly $64.9 billion, while operating profits grew 2.1% to nearly $5 billion, and Simon indicated that based on the start of August sales he was confident the company’s plans are working and will produce ongoing sales improvement.

 However, expectations for same-store sales in the third quarter continue to envision a potential decline with the range of possibilities extending from a 1% decline to a 1% increase. Simon noted that this year’s third quarter ends on Oct. 28 and therefore could be negatively affected by last minute Halloween sales, which would fall in the fourth quarter.

Comps are expected to turn positive by the fourth quarter according to Simon and other executives at the company who contend the emphasis on every day low prices on a broad assortment of merchandise will continue to gain traction.

“As you have heard from us before, we know that strengthening price leadership starts with being the low-cost provider,” said Wal-Mart Stores, Inc. CFO Charles Holley. “As we continue to lower our costs, we will also be investing in price, helping our customers save money so they can live better. We will be relentless in widening the price gap, as Mike (Duke) says, to pass savings along to our customers around the world. We believe that EDLP will lead to top line growth as customer traffic improves.”

Walmart ended the second quarter with a total of 9,230 units worldwide, including 4,427  stores in the United States. The company now operates 2,933 supercenters and the number of discount stores has dwindled to 692 units as they continue to be converted to supercenters. There were 609 Sam’s Club, 183 Neighborhood Markets and 10 small format stores at the end of the second quarter.

A little more than half of Walmart’s store base, or 4,803 units, are now located outside of the U.S. in the following markets: Mexico (1,789), United Kingdom (536) Brazil (484), Japan (413), China (338), Canada (325), Chile (290), Costa Rica (183), Guatemala (177), El Salvador (78), Argentina (64), Nicaragua (62), Honduras (58) and India (6).

The international division grew sales by 16.2% to $30 billion and operating profits increased 8.9% to $1.4 billion.

The strongest performance was turned in by Walmart’s small division. Sam’s Club same-store sales increased 5%, at the high end of the company’s guidance range and marked the sixth consecutive quarter of sequential improvement. Sam’s total sales increased 9.5% to $13.6 billion and operating profits increased 15% to $492 million. Sam’s Club president and CEO Brian Cornell said he expects third quarter comps to increase between 3% and 5%.