Walmart cites wages, stronger dollar for earnings miss

Hadley Malcolm | USA TODAY

Walmart's (WMT) first-quarter earnings fell short of Wall Street expectations as higher worker pay and a stronger dollar hurt the retailer's profit.

Walmart reported revenue of $114 billion, down 0.1% from the same quarter a year ago. Analysts expected $115.6 billion, according to S&P Capital IQ.

The company reported income of $3.34 billion and earned $1.03 a share. That's compared to $3.59 billion and $1.11 a share in the same quarter last year. Analysts expected earnings of $1.05 a share.

Shares tumbled more than 3% and the stock was the biggest decliner of the 30 stocks in the Dow Jones industrial average.

The world's largest retailer said operating income fell because of the company's investment in better wages for workers and the negative impact of currency exchange rate fluctuations. In February, Walmart announced that it would raise the minimum wage of its employees to at least $9 an hour this year and get to $10 by next year.

As the retailer invests more in employees and e-commerce strategies, it will need to drive higher sales to show investors the strategy is working, says Brian Yarbrough, analyst with Edward Jones.

"All this investment in e-commerce and wages is actually limiting their ability (to grow earnings)," he says. "Now they probably need same store sales comps of 2% plus to show any kind of leverage."

Walmart Chief Financial Officer Charles Holley said internal surveys show the wage increases have already had a positive effect with both employees and customers and will help lift sales in the long term.

Walmart Treasurer Claire Babineaux-Fontenot said: "Currency exchange rate fluctuations had a greater than anticipated impact on this year's first quarter results. Fluctuations in currency negatively impacted net sales by approximately $3.3 billion, and similarly impacted EPS by $0.03."

Lower gas prices helped sales at Walmart U.S. stores, the company said. Sales at stores open at least a year increased 1.1% as the company saw its second quarter in a row of positive store traffic after several quarters of declines. However, low gas prices had the opposite effect at Sam's Club, which saw same-store sales decrease 3.8%. Excluding gas, sales increased 0.4%.

Labor issues at West Coast ports delayed shipments of TVs in particular to Sam's Club and Walmart early in the quarter but the disruption diminished by the end of April, Holley said.

Walmart continues to invest in its e-commerce strategy with initiatives that give customers more options for how to shop and is expanding its line of smaller format stores with a focus on fresh food. Last week Walmart announced that it will pilot an unlimited free shipping service similar to Amazon Prime this summer.