Wal-Mart reports stronger US sales; shares jump

US retail giant Wal-Mart Stores reported slightly higher quarterly sales Thursday and said better-than-expected earnings reflected the benefits of heavy investment to boost worker salaries and improve the shopping experience.

But executives described US consumers as still cautious and acknowledged that steep investments in e-commerce have yet to pay off.

The world's largest retailer reported $115.9 billion in sales for its first quarter, up 0.9 percent from the year-ago period. But net income fell 7.8 percent to $3.1 billion.

Shares of Dow member Wal-Mart surged 9.1 percent to $68.89 in afternoon trade.

"We are proud of the overall results in the first quarter, and there is momentum in many parts of the business," said chief financial officer Brett Biggs.

The results come on the heels of a series of largely disappointing earnings reports from other larger retailers such as Target and Macy's.

Biggs told reporters on a conference call that there is "still an air of uncertainty" among US consumers, despite some favorable economic conditions, such as low unemployment and relatively low gasoline prices.

Shares of Wal-Mart took a big hit in October when it slashed its profit outlook to boost investment by some $1.5 billion in fiscal 2017, mostly on higher wages.

But Wal-Mart attributed the first quarter's one percent rise in sales at comparable US stores to these investments. The company's Walmart US stores account for more than 60 percent of total revenues.

Storewide improvements include cleaner parking lots, better display of fresh foods and more tightly managed inventories, said Walmart US president Greg Foran.

"This is very, very incremental," Foran said of the improvements.

"As you gradually improve on these 100-plus aspects of shopping, the customer gets a better experience and with better luck, that's reflected in them coming to visit you more often and them putting one more item in the trolley."

Foran said there is still room for improvement, since Walmart still lags some competitors in terms of the shopping experience.

- Awaiting e-commerce payoff -

Wal-Mart has also significantly boosted its spending on online sales as it tries to fend off competition from Amazon and other companies.

Wal-Mart said in October it would raise investment in e-commerce from $700 million in 2015 to $900 million in 2016 and a projected $1.1 billion in 2017.

Wal-Mart is still waiting a fuller payback. So far the payback has not been as good as hoped. A seven percent rise in global e-commerce sales during the first quarter was "not as strong as we wanted," said Biggs.

The company is optimistic about the potential of online grocery sales and its "Walmart pay" system, Biggs said.

Some analysts said Wal-Mart's tepid performance online was reflective of a broader problem.

"We believe Wal-Mart, along with other brick and mortar retailers, have a long way to improve with respect to SKU selection, website interface, website functionality and most of all, creating a seamless experience with stores," said Morgan Stanley.

"For retailers, there are many areas to execute (or mis-execute) in an omni-channel world and retailers have yet to master them in our view."

Conlumino, a retail consultancy and research firm, said Wal-Mart has "only really started the journey" of updating its infrastructure for the smartphone era. The shift requires hefty investment, which will necessarily pinch the bottom line in the short-run.

"Arguably, if Walmart is to retain and grow its market share in the US, it has to flex and align its business model with new ways of shopping and consuming. Those ways are more complex and more costly," Conlumino said.

Walmart International reported higher operating earnings behind especially strong results in Canada and Mexico that made up for much lower sales in Britain, where intense competition in grocery has hampered performance.

Wal-Mart said it expects the solid performance to continue in the second quarter, projecting per-share earnings to be between 85 cents and $1.08, compared with analyst expectations for 98 cents per share.

Wal-Mart said the strong results would allow it to move ahead with price cuts on key products more quickly than planned, likely pressuring other retailers.