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november 15, 2012 • 07:14 AM

Wal-Mart sales show global consumer pressure, shares down

Customers are seen at a Wal-Mart market in Miami, Florida May18, 2010.
Foto: Carlos Barria / Reuters

Wal-Mart Stores Inc reported quarterly sales below analysts' expectations on Thursday, as the struggling global economy pressured shoppers not only in the United States, but globally.

The world's largest retailer also said it has opened internal inquiries or investigations into bribery allegations in Brazil, China and India - adding to its original probe in Mexico.

Wal-Mart shares fell 3.8 percent to $68.62 in morning trading as sales at its U.S. discount stores and Sam's Club unit came in below expectations, fewer customers shopped at its stores in China, and the weak economy hurt results in Japan.

"Whether you're in the U.K. or you're in Argentina, Mexico or China or the U.S. or Canada, I think that all consumers are starting to be under some kind of pressure," Chief Financial Officer Charles Holley said on a conference call with reporters.

Still, the company said sales so far this month were better than expected in the United States as its low-price strategy has drawn consumers worried about their jobs and the costs or gasoline, energy and food.

Total sales rose 3.4 percent to $113.20 billion for the third quarter ended October 31. Analysts, on average, looked for $114.96 billion, according to Thomson Reuters I/B/E/S. Excluding the impact of currency fluctuations, sales would have been $114.9 billion, the company said.

Sales at Walmart U.S. stores open at least a year, or same-store sales, rose 1.5 percent. The company had forecast an increase of 1 percent to 3 percent, and analysts, on average, looked for a 1.8 percent gain as management expressed optimism during a recent meeting with analysts.

In contrast, rival Target Corp reported a quarterly profit that beat analysts' expectations, luring shoppers with a wider variety of food products and 5 percent discounts for its cardholders.

Lower prices for some food and electronics pressured Walmart U.S. sales. At the same time, while shoppers put millions of dollars of merchandise on layaway, those sales are not registered until the items are paid in full. That typically occurs in the fourth quarter, closer to the end of the holiday season.

"The slight deceleration in growth reflects the underlying pressures facing U.S. consumers," said Natalie Berg, director of global research at Planet Retail. "Having made significant improvements to price perception, Walmart today is actually well placed to cater to budget-conscious shoppers. But at the end of the day, consumers are still very wary about parting with their hard-earned cash."

Traffic at the U.S. stores rose only 0.1 percent as shoppers consolidated trips due to higher gasoline prices.

The Walmart U.S. unit forecast a 1 percent to 3 percent increase in same-store sales for the fourth quarter, when it will be helped by customers' final payments and pick-ups of third-quarter layaway items.

Sam's Club results also disappointed, with same-store sales rising 2.7 percent, excluding gasoline sales, compared with a 5.7 percent increase a year earlier.

Club members, who pay a fee to shop there, bought cheaper items and traffic from business customers slowed.

The results were especially disconcerting to Wall Street since Sam's Club has outperformed Wal-Mart's discount stores.

"When you see a slowdown in sales and then pressure in traffic, that causes investors to be cautious," Edward Jones analyst Brian Yarbrough, said.

Overall, the world's largest retailer earned $3.64 billion, or $1.08 per share, in the third quarter ended October 31, up from $3.34 billion, or 97 cents per share, a year earlier.

Analysts, on average, targeted $1.07 a share.

International sales rose 2.4 percent to $33.16 billion, and would have risen 7.6 percent without currency fluctuations, the company said. Operating profit rose 4.8 percent.

Traffic declined 7.6 percent at its stores in China, and it is facing challenges in Japan due to the economy. Sales there fell 1.8 percent and traffic declined 1.7 percent.

Wal-Mart's international operations remained under scrutiny following a New York Times article in April about alleged bribery at its Mexican unit.

The company said it has spent tens of millions of dollars on advisers reviewing Foreign Corrupt Practices Act (FCPA) matters and spend $48 million in the third quarter on the review, more than it initially planned.

The company said on Thursday it is looking into allegations of potential FCPA violations in a number of countries, including but not limited to Brazil, China and India. Holley declined to give more details about the investigations.

(Additional reporting by Jessica Wohl in Cincinnati; Editing by Lisa Von Ahn and Jeffrey Benkoe)

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