Transcripts

WalMart's Happy Face Has Little To Smile About

SUSIE GHARIB: New evidence today that consumers are being more careful in their spending. The world's largest retailer issued a mixed earnings report today. Wal-Mart said first-quarter profits matched analyst expectations. But the company's CEO said sales were disappointing, and gave a cautionary earnings outlook. That sent Wal-Mart stock tumbling 2 percent. Suzanne Pratt reports.

SUZANNE PRATT, NIGHTLY BUSINESS REPORT CORRESPONDENT: The world's largest retailer rang up a lackluster first quarter today, and warned Wall Street the current quarter may show little improvement. Including the effects of an accounting change, Wal-Mart earned $0.42 a share in the three-month period ending April 30. That is in-line with analysts' forecasts and a nickel better than last year. First-quarter profits were helped by a weaker dollar and cost cutting. But at nearly $57 billion, sales for the Arkansas-based company fell short of the $60 billion analysts were expecting. Company executives called the sales increases disappointing, and said they have led to high inventory levels, something analysts note could be cause for concern.

JEFFREY KLINEFELTER, RETAIL ANALYST, US BANCORP PIPER JAFFRAY: That's discouraging for investors with respect to Wal-Mart. It's also a concern when you look at other retailers, because Wal-Mart being the sheer size and huge participant in most of these key product categories, if they start marking product down, it's going to cause problems throughout the industry.

PRATT: Looking ahead, the company said it expects the second quarter to come in at the lower end of estimates, whereas the full year should work out pretty much as planned. Executives are worried that an environment of high unemployment and low consumer confidence will constrain spending in the coming months. As for Wal-Mart stock, at least one analyst says it's overvalued.

MARK MANDEL, RETAIL ANALYST, BLAYLOCK & PARTNERS: The stock currently trades at roughly 28 times the 2003 earnings estimate, which is about two times what we believe is the company's three- to five-year growth rate in earnings per share. So that makes it a fairly expensive stock in our opinion.

PRATT: Even if the U.S. economy doesn't pick up in the second half of this year, experts say Wal-Mart's earnings could still look pretty good. That's because last year's numbers were soft, making for easy comparisons for this year. Suzanne Pratt, NIGHTLY BUSINESS REPORT, New York.