Strong Wal-Mart profit trumps bribery probe concerns

  • Business
  • Saturday, 19 May 2012

CHICAGO: Wal-Mart Stores Incs profit and sales surpassed expectations as more people shopped at its established US stores and spent more, pushing shares up more than 4% despite ongoing internal and government probes into possible bribery.

Wal-Marts shares jumped and briefly recovered all of the 8.2% plunge sustained after an April 21 New York Times report uncovered an alleged past bribery scheme in Mexico that the newspaper said Wal-Mart executives knew about.

The first-quarter results, including a 10.1% increase in profit, showed that Wal-Marts US recovery was on track and efforts were progressing to cut costs and establish everyday low pricing in markets such as China.

The real question is, would the stock be higher if it werent for the investigation' Its very hard to know, said Faye Landes, managing director at Consumer Edge Research.

At the same time, Wal-Mart is seen as a defensive play amid weak economic data and worries about Europe.

Wal-Mart shares could rise to US$65 to US$70 and perhaps in six to nine months break out of their 13-year trading range, driven by earnings growth, said Gilford Securities analyst Bernard Sosnick. The shares last traded above US$70 in 1999.

A strong performance from the Walmart US unit pleased investors. Sales at Walmart US stores open at least a year rose 2.6% in the first quarter and should rise 1% to 3% in the second quarter, the company said.

The rebound in the United States follows Walmarts reversal of its inventory reduction plan after shoppers headed elsewhere to find goods not on Walmart shelves.

The turnaround they initiated several quarters ago is starting to show some benefit, its starting to gain traction.

But at the end of the day it is still a very challenging backdrop for them, said Walter Stackow, a senior research analyst at Manning & Napier, which owns Wal-Mart shares.

Stackow cited the financial concerns of Walmarts core customers and the competition Walmart faces from dollar stores and online retailers.

WalMarts shares closed up 4.l2%, or US$2.49, at US$61.68 on the New York Stock Exchange. Reuters

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