Wal-Mart misses, warns

No. 1 retailer falls short of analysts' forecasts; warns on 2Q of 2005. Target's EPS tops forecasts.

May 12, 2005: 8:42 AM EDT

NEW YORK (CNN/Money) - Wal-Mart Stores blamed higher gasoline prices and cooler weather for missing forecasts for earnings and sales in the first quarter, and warned that future periods could fall short of expectations.

In a recorded conference call, Wal-Mart (Research) gave a second-quarter guidance short of forecasts and warned its previously-stated full-year target is at risk.

Results were far better at competitor Target (Research), the nation's No. 3 general retailer, which beat analysts' forecasts for earnings, although sales were a touch less than expected.

The world's largest retailer earned $2.3 billion, or 55 cents a share, excluding special items, for the period ending April 30. That's a record and is up from net income of $2.2 billion, or 50 cents, a year earlier. But analysts surveyed by earnings tracker First Call had forecast EPS of 56 cents.

"Our results were not up to Wal-Mart standards," CEO Lee Scott said in the recorded call.

Including special items, the company posted net income of $2.5 billion, or 58 cents a share, in the quarter.

Difficulties ahead
The company also missed sales targets, as total revenue rose 9.5 percent to $71.7 billion from $65.4 billion a year earlier. First Call's forecast was for revenue of $72 billion. Sales at stores open at least a year, a closely-watched retail measure known as same-store sales, rose 2.9 percent in the quarter. It restated its earlier guidance of a same-store sales gain of 2 to 4 percent in the current period.

In a recorded call, Chief Financial Officer Tom Schoewe said the company is looking for second-quarter earnings of 63 to 67 cents a share. While that is up from 62 cents a year ago, it's short of the 70 cents a share forecast from First Call.

"We anticipate gasoline prices will continue to impact our customers and result in below plan sales," Schoewe said. While both he and Scott said the company is looking for a strong second half of the year, Schoewe warned investors, "Our initial earnings forecast for the year of $2.70 to $2.74 a share is still possible but far more difficult given our current outlook for the second quarter."

Robert Buchanan, retail analyst for AG Edwards, described the company's second quarter guidance as "a bomb," saying it would cause him to re-evaluate his own below-consensus forecast of 66 cents a share in the period, even though it is in Wal-Mart's current guidance range.

He had downgraded Wal-Mart shares to a "hold" from a "buy" in early April after its March sales report.

Buchanan said he believes Wal-Mart is having internal execution problems beyond the macroeconomic issues such as gas prices cited by the company.

"Basically it's long lines and slow speed at checkout and missing some fashion and not having (digital music player) iPod still in the majority of the stores," he said. He said he thinks the company's rank and file is being affected by continued bad news reports about the company, such as reports that former Vice Chairman Tom Coughlin padded his expense account with up to $500,000 in improper purchases.

"From my visits to hundreds of stores, I sense that's not sitting well with employees making minimum wage and struggling to make ends meet," he said.

Shares of Dow component Wal-Mart fell $1.65, or 3 percent, to $46.95 in pre-market trading on Inet following the report, taking shares near a two-year low. The company's reports took the broad-market futures into negative territory following the report, indicating a lower open for stocks Thursday.

Better news at Target
Minneapolis based Target reported it earned net income of $494 million, or 55 cents per share, in the period ending May 1, compared with $392 million, or 43 cents per share excluding discontinued operations in the year-earlier period.

First Call had forecast Target's EPS at 53 cents.

Revenue rose 12.7 percent to $11.48 billion in the quarter, just under analysts' forecasted revenues of $11.53 billion. Same store sales grew 6.2 percent in the period, beating growth at Wal-Mart and throughout chain stores in general.

"We are optimistic about our ability to sustain our competitive advantage and remain confident that we will continue to enjoy profitable market share growth throughout 2005 and beyond," said a statement from Chairman and CEO Bob Ulrich. The company's statement did not give any detailed sales or earnings forecasts going forward, though.