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Wal-Mart cuts profit forecast as it gears up e-commerce

Wal-Mart Stores lowered its 2014 profit outlook on Thursday (Aug 14) as it turns toward online sales amid weakness in its key US market, still struggling with a fragile economy.

WASHINGTON: Wal-Mart Stores lowered its 2014 profit outlook on Thursday (Aug 14) as it turns toward online sales amid weakness in its key US market, still struggling with a fragile economy.

The world's largest retailer posted a slight profit rise and better-than-expected sales for its fiscal second quarter that ended July 31.

Wal-Mart lowered its 2014 earnings forecast to earnings per share between US$4.90 (S$6.10) and US$5.15, from the prior estimate of US$5.10-5.45, citing investments in e-commerce and higher US health care costs than previously anticipated. The outlook was weaker than the earnings of US$5.15 per share expected by analysts.

Doug McMillon, Wal-Mart's president and chief executive, said the discount retailer had clocked up encouraging performances in its international business, its new smaller-sized Neighborhood Market stores in the US and in e-commerce. "We wanted to see stronger comps in Walmart US and Sam's Club, but both reported flat comp sales. Stronger sales in the US businesses would've also helped our profit performance," McMillon said in a statement.

The Bentonville, Arkansas-based company had net income of US$4.09 billion in the quarter, up 0.6 per cent from a year ago. Adjusted earnings per share were US$1.21, matching Wall Street estimates.

Net sales beat expectations, rising 2.8 per cent year-over-year to US$119.33 billion. Total revenue rose 2.8 per cent to US$120.1 billion. But comparable-store sales in the United States, Wal-Mart's largest market that includes its Walmart brand and Sam's Club membership stores, were flat in the 13 weeks ended August 1.

Same-store customer traffic at Walmart US, the company's largest chain, fell 1.1 per cent, while traffic at Sam's Club rose 0.3 per cent. For the current 13-week period, Wal-Mart said it expects US comp sales to be "relatively flat."

Wal-Mart is facing a sluggish retail market in the US amid minimal wage growth and high unemployment as the economy still struggles to recover five years after exiting severe recession. Year-over-year sales gains were made in all company divisions, with Walmart International pulling in the largest increase at 3.1 per cent, topping Walmart US's 2.7 perc ent rise.

"We remain focused on price investment across all our markets and expect to continue driving improved comp performance,' said David Cheesewright, Walmart International president and CEO. "I am pleased with the trends in many of our markets, which were driven by a continued focus on being the lowest cost operator."

E-COMMERCE IN FOCUS

E-commerce sales added about 0.3 per cent to the US same-store sales, the company said, adding that it needed to move quickly to improve customer service.

"Our investments in e-commerce and mobile are very important, as the lines between digital and physical retail continue to blur. Our customers expect a seamless experience, and we're working to deliver that for them around the world," McMillon said.

Wal-Mart is competing with US online retail giant Amazon, and is banking on its huge international network of 11,000 stores. It recently has snapped up companies specialised in data analysis and online marketing to lure more customers to its websites.

The company just launched an online price-comparison app, Savings Catcher, to allow customers to get back the difference they paid when they find a local competitor offers a lower advertised price.

Shares in Dow component Wal-Mart were down 0.2 per cent at $74.03 in pre-market trade on the New York Stock Exchange.

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