Wal-Mart 2Q profit up 5.7 pct on cost-cutting, solid US business; revenue shortfall hits stock

NEW YORK — Wal-Mart Stores Inc. reported a 5.7 percent increase in second-quarter net income and raised its outlook for the full year as the world’s largest retailer continues to woo back frugal shoppers by re-emphasizing it has the lowest prices on everything from clothes to electronics.

But Wal-Mart is seeing its momentum slow down amid a tough economic climate here and abroad. Its total revenue came in short of Wall Street estimates, and the discounter is delaying store expansion plans in Mexico, its largest international division, as it deals with bribery charges there. It’s also scaling back store growth plans in China and Brazil to boost profitability in those operations.

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Investors, who had sent the stock up 25 percent since mid-May, pushed shares down more than 3 percent on the news.

Wal-Mart is considered an economic bellwether because the retailer accounts nearly 10 percent of nonautomotive retail spending in the U.S. The company, based in Bentonville, Ark., said its customers are still being squeezed by economic problems in the U.S. and abroad. In the U.S., Wal-Mart’s low-income shoppers are still having trouble stretching their dollars to the next payday, and that financial duress escalated overseas in the latest quarter. The company said what’s helped it is a focus on low prices.

“I don’t think the economy is helping us,” Charles Holley, Wal-Mart’s chief financial officer told reporters during a conference call. “Our customer is still very concerned about employment.”

Still, Wal-Mart’s results offer optimism that the company’s namesake U.S. business has turned a corner. Wal-Mart, which thrived during the U.S. recession as more well-off people started shopping at its stores here, had begun to struggle as the retailer’s core low-income customers were hit hard by joblessness and other challenges in a slow economic recovery.

Adding to that, Wal-Mart’s U.S. stores, which account for 60 percent of the company’s revenue, had turned off shoppers by veering away from its “everyday low prices” strategy and focusing more on temporarily slashing prices on select items. It also got rid of popular merchandise in an effort to de-clutter the stores.

Wal-Mart last year began adding back 10,000 products and refocused on keeping prices low throughout the store, backing the strategy with TV campaigns. It has done that by cutting expenses and passing some of the savings on to customers. As a result, revenue at Wal-Mart’s U.S. division rose 3.8 percent to $67.35 billion in the latest quarter.

Revenue at stores open at least a year — considered a key measure of a retailer’s health because it excludes the impact from stores that open and close during the year — rose 2.2 percent in the division, excluding fuel. The figure, which was slightly above the 2.1 percent Wall Street estimate, marks the fourth consecutive quarterly gain for the division after it experienced nine straight quarters of declines. However, the pace was slower than the 2.6 percent gain in the company’s first quarter.