Macro Notes from the WalMart (WMT) Conference Call

A pretty good insight into the lower end consumer.  See here for the full transcript.

Key Metrics

EPS from continuing operations of $1.09, up 12.4 percent over the $0.97 per share from continuing operations last year.

EPS guidance range of $0.95 to $1.00 and raised full year EPS guidance range to $4.41 to $4.51.

Net sales for the second quarter were $108.6 billion, an increase of 5.5 percent from last year, with contributions from all segments.

Total U.S. comps, without fuel, for the 13-week period ending July 29 were flat. Sam’s Club comparable sales, without fuel, increased 5.0 percent for the same period, at the top of guidance. Walmart U.S. comparable store sales were -0.9 percent, within guidance for the period.

Walmart International increased net sales 16.2 percent to $30.1 billion for the quarter. This included a currency exchange translation benefit of $2.3 billion.

During the second quarter, the company returned $2.7 billion to shareholders through dividends and share repurchases.

Struggling U.S. Consumer

…recently observed several consumer focus groups, and it’s clear that many consumers are still struggling. They’re trading down to stretch their budgets, buying a lower-priced brand of detergent, moving from branded canned goods to private label and purchasing half gallons of milk instead of gallons.

…The economy remains challenging for our core customers. Customers are still consolidating trips due to higher year-over-year gas prices. The swings in sales due to paycheck cycles remain pronounced, and our stores must staff and stock for the volatility both up-and-down. We also have seen an increase in the number of customers relying on government assistance for food and necessities for their family. Our grocery business continued its positive trend and again delivered low-single digit positive comps for the period. Food remains a key traffic driver to our stores. The strong performance during the July 4 weekend offset softness in the Memorial Day weekend.

Sales across dry grocery continue to accelerate

Food inflation has replaced gasoline price as the most important household expense concern. In addition, more than 15% of Wal-Mart (WMT) moms in our monthly survey have experienced the loss of a household wage earner’s job in the last year. Almost 40% of these Walmart moms indicate they’re holding off or eliminating items they would normally buy, reinforcing the need for us to drive Every Day Low Price. Moms of all income levels showed a drop in confidence over the last year, with middle-income moms showing the greatest drop.

New Technology and e-commerce

…our global e-commerce team stepped-up its work on delivering a continuous shopping experience to customers from the store to the Web to their mobile devices. In mature markets, we’re investing in multi-channel initiatives by integrating our stores with online services. We completed the rollout of Pick Up Today in all Walmart U.S. stores and within the last month, we announced that VUDU, our movie streaming technology, is now available on, as well as through any iPad browser.

..In June, we established Walmart’s China e-commerce headquarters in Shanghai, and we put in place the leadership team to quickly build this business. We are investing in the right talent and technology to pursue the growth in e-commerce. I believe that Walmart is the best positioned retailer to serve the needs of the next-generation customers who are striving to join the emerging global middle class. They’re connected to the world through smartphones and social media. They have higher expectations of value, quality and a better life. We will continue to advocate for policies that make sense for our customers and our business.

Corporate Taxes

We’ve also called for modernizing our nation’s corporate tax code. Last month, I [Mike Duke] testified before the U.S. Senate Finance Committee on reforming the tax code to drive job growth here at home and encourage America’s competitiveness abroad. To achieve comprehensive reform, we’ve called for putting everything on the table including the existing incentives that benefit us. There are 3 key points that I emphasized to the committee: one, lower their corporate tax rate; two, get rid of existing incentives that benefit some industries over others; and three, level the international playing field with a territorial system.

Global Sales: 53 New Stores in China

Walmart International reported second quarter net sales of $30.1 billion, an increase of 16.2% over last year. Changes in currency rates increased our net sales by $2.3 billion. As a reminder, our markets benefited this fiscal quarter from Easter sales and in the United Kingdom, the royal wedding.

…On a constant-currency basis, net sales were $27.8 billion, an increase of 7.1% over last year’s second quarter. All of our markets had constant currency sales growth, except in Japan, where sales were affected by the March 2011 natural disasters. Mexico, the U.K., Canada, Brazil and China provided the strongest net sales growth in the second quarter.

…While Walmart China sales continue to grow in the second quarter, the sales growth was not enough to offset the increase in expenses. As a result, China had a small loss from operations. Net sales for the second quarter grew 9.7% over last year and comparable store growth was 1.8%. Average ticket grew 10% in China, but traffic declined 8.2%.

…In the past 12 months, we opened 53 new stores including 48 supercenters and that brings our China store count to 344 stores.

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