In a dark quarter for retailers, Wal-Mart shines

This May 28, 2013, file photo shows signage outside a Wal-Mart store in Duarte, Calif. (AP / Damian Dovarganes)

BENTONVILLE, Ark. -- Surprisingly strong sales at Wal-Mart and an optimistic outlook from the world's largest retailer lifted a pall that settled over the entire sector this week.

The company's shares jumped 9 per cent in early trading Thursday and companies that had been beaten down after universally dismal earnings reports appeared to catch a draft from Wal-Mart.

Wal-Mart's revenue climbed to $115.9 billion from $114.83 billion in the quarter, breezing past projections for $112.67 billion in revenue from industry analysts, according to a survey by Zacks Investment Research forecast.

Sales at U.S. stores open at least a year rose 1 per cent, the seventh consecutive quarterly increase. The sales metric is important because it strips away the volatility of recently opened or closed stores, providing a better look at how a retailer is doing.

Healthy sales at the Bentonville, Arkansas, company one day after Target Corp. reported slowing quarterly sales. Target is not alone though, as much of the retail sector is experiencing a sales slowdown, creating a lot of unease. Before Target, Macy's Inc., J.C. Penney Co., Nordstrom Inc. and Kohl's Corp. posted weak first-quarter sales as pressure from off-priced stores like T.J. Maxx and online retailer Amazon.com rises.

"We're off to a good start for the year," said Doug McMillon, CEO of Wal-Mart in a company release.

While Americans are spending money, the problem for traditional retailers is that they seem to be spending it elsewhere. Economists have seen a shift in habits, with more disposable income going toward vacations and dining out, rather than toward clothing or accessories.

Wal-Mart is making lots of changes that it says keep it competitive in a changing retail landscape. It's spending $2.7 billion on higher wages and other investments for its hourly workers over a two-year period.

It's cleaning up the stores and improving merchandise, particularly fresh produce. Wal-Mart is also trying to improve the experience of customers in its stores by better managing the number of registers open during peak traffic times.

There was one red flag, however, and it arrived from the front lines in Wal-Mart's fight with one of its most serious threats: Amazon.com.

Global e-commerce sales rose just 7 per cent for the first quarter, weaker than the 8 per cent growth in the previous quarter, and far below the 20 per cent increases seen less than two years ago.

McMillon said that level of growth is "too slow." While online sales in the U.S were stronger than elsewhere, McMillon said they're not where they should be.

Brett Biggs, chief financial officer, told reporters on a call Thursday that investments in the online business will take time to pay off. He conceded that Wal-Mart is battling a perception that it does not have as many products for sale online as rivals. Wal-Mart is now offering more than 10 million items online.

And the company continues to sharpen its attack on Amazon. Last week, it announced that it was quickening its free-shipping pilot program to two-day delivery from three, and it's cutting a dollar off the membership price. Membership is now $49 per year.

The pilot program was launched last year as a possible answer to Amazon Prime's two-day shipping, a big reason for its explosive growth.

Amazon membership costs $99 a year, which comes with a wide array of perks, including household product subscriptions, one- and two-hour Prime Now delivery, free streaming music and video, photo storage and more.

The company also said Thursday that it's expanded online grocery shopping to more than 40 markets in the U.S. as of this month, up from 20.

For the three months ended April 30, Wal-Mart Stores Inc. earned $3.08 billion, or 90 cents per share. That compares with $3.34 billion, or $1.03 per share, a year earlier.

Excluding one-time charges and benefits, per-share earnings were 98 cents, a dime better than Wall Street had expected.

Wal-Mart anticipates a second-quarter profit between 95 cents and $1.08 per share. Analysts polled by FactSet had been projecting 98 cents per share.

Wal-Mart shares are down 17 per cent over the past 12 months, but up 3 per cent so far this year. Shares gained $5.55 to reach $68.69 in afternoon trading.