Wal-Mart confronts big-box retail crisis, raises profit forecast

Wal-Mart Stores Inc. reported higher-than-expected quarterly profit on Thursday, saying it benefited from cleaner and more efficient U.S. stores, technology investments that streamlined online shopping and higher employee wages that led to better customer service.

The world’s largest retailer is spending big to entice shoppers back to its stores by offering better-stocked shelves, and it’s beefing up its e-commerce business by investing in new warehouses that can deliver online packages faster. Last week, it announced the acquisition of online startup Jet.com for more than $3 billion to better compete with Amazon.com Inc.

Wal-Mart earlier this year also raised starting wages to $10 an hour and said it would invest $2.7 billion over two years in worker compensation and training, which it said has helped improve service quality in its stores.

Analysts said the moves helped Wal-Mart raise its fiscal year forecast and confront a series of weak results from high-end rivals such as Target Corp, Macy’s Inc and Kohls Corp. Target lowered its fiscal year profit forecast on Wednesday after quarterly sales fell more than expected.

Wal-Mart U.S. Chief Executive Greg Foran said on a conference call that the company’s customers are still cautious about spending, but are visiting stores more often and buying more items. Store visits rose 1.2 percent and the average order size rose 0.4 percent in the second quarter ended July 31.

“We are seeing a steady improvement in the economic situation in the United States, which is responding positively to the changes we are introducing,” he said.

The Bentonville, Arkansas-based company said food and clothing sales were strong, but electronics sales were weak.

“Walmart’s strategic investments are paying off, which is especially important given that a large portion of its customers are still struggling,” said Moody’s analyst Charlie O’Shea.

The retailer admitted it was difficult to quantify the impact of low petrol prices and unseasonably warm weather, but these factors contributed to the overall sales increase.

Online sales recorded accelerated growth for the first time in more than five quarters, increasing 11.8 percent from 7 percent in the first quarter.

Chief Financial Officer Brett Biggs said e-commerce growth in the U.S. was stronger than in major foreign markets, largely due to more third-party sellers and continued growth in online grocery pickup options.

Wal-Mart has added 7 million items to its site this year, bringing its total to 15 million. By comparison, online competitor Amazon.com Inc. has 200 million.

The company raised its full-year earnings forecast to a range of $4.15 to $4.35 per share, including an estimated decline of 5 cents from the Jet.com acquisition, from the previous range of $4 to $4.30.

Second-quarter earnings per share were $1.07, excluding a gain from the sale of Wal-Mart’s China e-commerce unit and other items, which beat analysts’ average forecast by 5 cents.

Sales at U.S. stores open at least a year rose 1.6 percent (excluding fuel prices), better than expected. It was the eighth consecutive quarter of growth.

International sales fell 6.6 percent to $28.6 billion but rose 2.2 percent on a currency-neutral basis. Total revenue rose 0.5 percent to $120.9 billion.

Wal-Mart shares rose 2.8 percent earlier in the trading day. They were up 1.8 percent in the afternoon at $74.23.