MEXICO CITY, MEXICO - APRIL 23: People walk past a Wal-Mart store sign on April 23, 2012 in Mexico City, Mexico. According to reports, Wal-Mart de Mexico orchestrated a campaign of bribery to win market dominance by paying bribes to obtain permits in parts of the country. Wal-Mart Inc, along with two U.S. congressmen is conducting internal investigations over the allegations. (Image credit: Getty Images via @daylife
An internal probe of Wal-Mart's actions in developing markets has extended beyond the company's Mexican subsidiary to Brazil, China and India. The expansion comes only a year after Wal-Mart revealed Justice Department and SEC investigations of whether it bribed officials to spur the growth of its Mexican subsidiary.
Wal-Mart, after beginning an internal review after the government investigations started, says it began looking past Mexico after allegations that it violated the Foreign Corrupt Practices Act, a piece of legislation that allows U.S. authorities to prosecute American companies for misbehavior abroad such as bribery. Moreover, those allegations are not limited to Brazil, China and India, the company says, suggesting that Wal-Mart's problems could extend beyond these three countries.
A Wal-Mart spokesman declined to comment on how Wal-Mart learned about these allegations. "As these matters are currently under review, it would be inappropriate for us to comment further on the specific allegations until we have concluded the investigations," says David Tovar, Wal-Mart's vice president of corporate communications. So far, Wal-Mart has spent only $99 million in costs related to the investigation; for perspective, that figure is less than a tenth of Wal-Mart's daily sales last year.
Meanwhile, Wal-Mart, the world's largest retailer, gave a profit forecast that disappointed Wall Street. It sees profit between $1.53 a share and $1.58 a share in the fourth quarter, beneath the $1.59 a share that analysts predicted. For the full-year, Wal-Mart expects to earn $4.83 a share to $4.93 a share. That is below analysts' forecast of $4.94 a share.
Observers had hoped that Wal-Mart's cheap prices and past signals of a resilient consumer would mean full stores during the critical holiday shopping season. This seems too optimistic today. Recall that Wal-Mart was badly hit during the depths of the recession, a period that weakened its core of lower-income customers the worst. "Current macroeconomics continue to pressure our customers," says Charles Holley, Wal-Mart's chief financial officer.
Shares of Wal-Mart fell 3.8% in early morning trading. Wal-Mart, the world's largest retailer, competes most with Target and Sears, but also with Costco and discount chains like Dollar General. The stock has risen 15% this year as investors have shrugged off concerns about the overseas bribery.
In the most recent quarter, Wal-Mart earned $4.02 billion, $1.07 a share, on $114.3 billion in sales. Analysts predicted earnings of $4 billion, $1.18 a share, on $115.75 in sales.
"While we view this as a solid report, we believe investor expectations were already high and expect the stock to trade off today," says Citi analyst Deborah Weinswig.
Reach Abram Brown at email@example.com.