By Shan Li and Tiffany Hsu, Los Angeles Times –
LOS ANGELES — Despite multiple corruption probes into its Mexican subsidiary, retail giant Wal-Mart Stores Inc. reported first-quarter profits that exceeded Wall Street expectations as more shoppers returned to its U.S. stores.
Analysts say that the 10.1 percent jump in profits may signal a resurgence for the retailer, which has struggled in recent years as cash-strapped shoppers sought even lower-priced alternatives.
Other major merchants also reported first-quarter earnings this week. Struggling retailer Gap Inc. on Thursday topped forecasts with higher sales and held steady on profits, while Sears Holdings Corp. and J.C. Penney Co. reported mixed results.
Wal-Mart executives on Thursday said a heavy focus on low-price promotions had helped boost sales 2.6 percent at its U.S. stores open at least a year.
“We lower our costs in order to lower our prices so we can give customers a great assortment at the lowest prices,” William S. Simon, chief executive of Wal-Mart’s U.S. division, said in a telephone call with industry analysts. “It’s a fairly simple concept but one that’s critically important to our customers, particularly in challenging economic times.”
For the three months that ended April 30, the nation’s largest retailer reported a profit of $3.74 billion, or $1.09 a share, up 10.1 percent from $3.4 billion, or 97 cents, a year earlier. Sales were $112.3 billion, an increase of 8.6 percent from a year earlier.
A forthcoming grocery-focused Wal-Mart store in downtown L.A.’s Chinatown area, slated to open early next year, has sparked both excitement among local residents and anger from community activists, who accuse the retailer of providing poor wages and benefits.
But Wal-Mart’s biggest controversy erupted after a New York Times report in April alleged that company officials routinely engaged in bribery in its Mexico operations to smooth the way for its expansion. In response, the company launched an internal investigation into the allegations.
Wal-Mart said Thursday that the Securities and Exchange Commission and the Justice Department are also investigating possible violations of the Foreign Corrupt Practices Act, and a number of Mexican government agencies have initiated probes of their own.
The retailer warned investors Thursday that the investigations could lead to “a variety of negative consequences.”
Also Thursday, Gap, which has been trying to inject excitement into its brands, reported a profit of $233 million, or 47 cents a share, that was flat compared with last year. Sales jumped 6 percent to $3.5 billion.
Earlier this week, struggling Sears reported a profit in its first quarter, although much of the gain came selling some of its stores, which the retail company announced in December after a disappointing holiday slump.
Sears said it earned $189 million, or $1.78 per share in the quarter that ended April 28, after losing $170 million, or $1.58 per share, during the same period last year.
Sears has tried to revitalize itself after four years of sales declines. Revenue is still hurting — down 3 percent in the first quarter to $9.3 billion from $9.5 billion a year earlier. Weak demand for consumer electronics pushed same-store sales in the U.S. down 1.6 percent for both Sears and Kmart.
After revamping prices, J.C. Penney dismal first-quarter earnings report Tuesday sent its stock plummeting. It lost $163 million, or 75 cents a share, in the period that ended April 28. Revenue was down 20.1 percent to $3.15 billion.
Analysts say that the new pricing strategy, which involved swapping out its ongoing sales cycles for year-round low prices, is getting the cold shoulder from shoppers.
The retailer said it would stop paying a 20-cents-a-share quarterly dividend in a bid to save $175 million.
“Sales and profitability have been tougher than anticipated during the first 13 weeks,” Chief Executive Ron Johnson said in a statement.
On Thursday, Wal-Mart shares were up $2.49, or 4.2 percent, to $61.68, Sears rose $1.55, or 3.1 percent, to $52.42, J. C. Penney fell 81 cents, or 3 percent, to $25.94 and Gap Inc. dropped 79 cents, or 2.9 percent, to $26.31.
