Wal-Mart Stores, Inc. (WMT): Not a Good Bet

Discount retailer Wal-Mart (NYSE: WMT) reported record earnings of $0.88 per share for the first quarter today, compared to $0.77 per share for the year ago period. The company announcement beat expectations by about $0.03.

Net sales increased 6 percent for the quarter primarily from a jump in international sales of over 21 percent and favorable exchange rate. Comparable US store sales declined 1.4 percent; last year saw a 1.5 percent decline for the same period.

International operating income increased almost 28 percent. Consolidated operating income was up 10.6 percent.

The company forecast earnings at $0.93 to $0.98 per share compared to $0.88 per share last year.

According to Tome Schoewe, EVP and CFO, the US continues to present a challenging sales environment. He added: “The company grew sales by 6 percent and added more than 3.6 million square feet of selling space during the first quarter. In fact, we are confirming our initial capital spending guidance of $13 billion to $15 billion this year, as we continue to invest in new stores and remodeling our existing stores and clubs.”

The company operates over 8400 retail units in 15 countries.

Comments: WMT improved its liquidity with a big increase in short-term debt but still reported negative free cash flow (operating activity less property and equipment payments) for the period. According to financial statements, the decrease was “primarily the result of increased investment in inventory.”

On the surface, this looks like a good report, particularly in international sales, but US performance is marginal. The company released a PR piece today touting even bigger rollbacks in merchandise. Investors like the stock as it is up about 3 percent today, but the company needs to make additional investment to boost sales, which will squeeze profits in the near-term. Not a good bet for now.

Disclosure: No positions