By Jessica Wohl
(Reuters) - Wal-Mart Stores Inc (WMT.N) posted weaker-than-expected quarterly earnings on Thursday due to poor U.S. sales and said its profit for this quarter might also miss Wall Street's forecast.
Everything from pressure on shoppers to a cool start to spring led to an unexpected 1.4 percent drop in sales at Walmart U.S. stores open at least a year. (Graphic on Wal-Mart earnings http://link.reuters.com/qan28t)
Consumers with lower incomes have been especially squeezed by higher payroll taxes, consistently elevated gas prices and a shaky employment recovery.
Shares of the world's largest retailer were down 2.1 percent, or $1.72, at $78.14 after falling as much as 3.2 percent earlier in the session. The stock had hit a new high of $79.96 on Wednesday.
"We hadn't seen the business turn around particularly in April," said ITG analyst John Tomlinson. "That was a concern because at that point you would think tax refunds and lower gas prices would have started to help the business."
Earlier this year, Wal-Mart said that delays in tax refund checks from the U.S. Internal Revenue Service would crimp shoppers' spending on discretionary items. But the effects went beyond that, and the drop in refunds pressured shoppers and, in turn, sales at the company's U.S. stores.
"We do know that the lack of IRS refund checks did hurt our consumers," Wal-Mart Chief Financial Officer Charles Holley told reporters. "In fact, the IRS, I think, has said that they've estimated that there were about $9 billion less in refund checks, and we certainly cashed less of those checks."
The company forecast earnings of $1.22 to $1.27 per share for its second quarter, which began on May 1. Analysts had been expecting $1.29, according to Thomson Reuters I/B/E/S. The year-earlier profit was $1.18 per share.
WEATHER, TAXES HIT SALES
First-quarter same-store sales at Walmart U.S., by far the company's largest unit with about 59 percent of sales last year, fell 1.4 percent. Wal-Mart and analysts had expected such sales to be about flat with those of a year earlier.
Walmart U.S. Chief Executive Officer Bill Simon said the delay in income tax refund checks, a 2 percent increase in payroll taxes and "some of the most unfavorable spring weather we've seen in recent years across much of the country" hurt business in his stores.
Sales of warm-weather items, from outdoor furniture and sporting goods to fans and spring clothes, were challenged, particularly from mid-March to mid-April, Simon said. At the same time, price increases in grocery items were lower than expected, "and in fact, we had some deflation in areas like dry grocery," he said on a recorded call.
Weakness during the quarter was not limited to Wal-Mart. Target Corp (TGT.N), for example, said in April that its same-store sales were likely to come in lower than expected because of soft demand for spring merchandise and weather-sensitive items. It reports results next week.
Holley said Wal-Mart was seeing "very healthy, positive" same-store sales so far in the second quarter at Walmart U.S. and feels good about sales at its Sam's Club warehouse chain, which caters to clients such as small-business owners.
Meanwhile, Sam's Club raised some of its annual membership fees by $5 and $10, bringing them to $45. Sam's Club's highest fee remains at $100, which is $10 below that of rival Costco Wholesale Corp (COST.O).
BRIBERY PROBE COSTS
In 2011, Wal-Mart began a probe into alleged violations of the U.S. Foreign Corrupt Practices Act and whether the company had handled such matters appropriately. The situation drew public attention in April 2012, when the New York Times reported that management at Wal-Mart de Mexico (WALMEXV.MX) orchestrated bribes of $24 million to help it grow quickly in the last decade and that the U.S. parent's top brass tried to cover it up.
Wal-Mart spent $73 million on FCPA work in the first quarter, rather than the $40 million to $45 million it had anticipated. It expects to spend another $60 million to $65 million in the second quarter and does not yet know when its own investigation or government probes might end.
About $44 million of the first-quarter FCPA costs stemmed from ongoing inquiries and investigations, while the other $29 million was for a global compliance review, program enhancements and organizational changes, Wal-Mart said.
In the first quarter, profit fell in Wal-Mart's international division, with operating costs growing faster than sales. The company said it was spending more in areas such as international e-commerce and is also stepping up compliance efforts across 14 areas from ethical sourcing to licenses and permits.
Wal-Mart earned $3.78 billion, or $1.14 per share, in the first quarter that ended on April 30, up from $3.74 billion, or $1.09 per share, a year earlier.
The analysts' average estimate was $1.15 per share. Wal-Mart had forecast a profit of $1.11 to $1.16 per share.
First-quarter revenue rose 1 percent to $114.19 billion. Analysts expected $116.29 billion.
The company said it expected second-quarter same-store sales, excluding those of fuel, to be flat to up 2 percent at Walmart U.S. and up 1 percent to 3 percent at Sam's Club.
Wal-Mart spent about 2 cents per share on e-commerce investments in the first quarter and expects to spend about the same amount in the second quarter as part of its plan for total spending of 9 cents per share for the year.
(Reporting by Jessica Wohl in Chicago, additional reporting by Phil Wahba in New York; Editing by Lisa Von Ahn and Maureen Bavdek)