Wal-Mart Stores Inc. officials say increasing health care expenses and investment in e-commerce operations hurt the retailer’s balance sheet for the second quarter, but the company still posted $4.1 billion in profits.
For the quarter ending Aug. 1, overall consolidated net sales for the multinational retailer were $3.2 billion, with $1.9 billion of that coming from Wal-Mart’s U.S. operations, said Charles Holley, chief financial officer, in a pre-recorded call Aug. 14.
Expansion efforts expected to boost sales include the introduction of a new private label, Price First, in the third quarter, executives said during the call.
However, Holley and other executives downgraded overall expectations for the rest of year, citing higher than expected employee enrollment in health care plans as a key factor. The company had estimated health costs of $330 million for the current fiscal year, but are now projecting those costs will be at least $500 million.
Flat sales are not helping the situation, said Doug McMillon, who took the reigns as president and CEO of the company Feb. 1. Although Wal-Mart was in the black for the second quarter — compared to a 5% year-to-year profit drop in the first quarter — the $4.1 billion profit for the second quarter was only 0.6% higher than the second quarter for the previous year.
McMillon and Greg Foran, who was just named president and CEO of Wal-Mart U.S. in July, both said they are confident profits will increase.
Foran said the Neighborhood Market and Wal-Mart Express formats are performing well. The retailer opened 22 Neighborhood Markets in the quarter and expects to have 180 to 200 new stores in that format by the end of the year. Plans call for 90 Express stores to open by the end of the fiscal year, Foran said.
A new e-commerce distribution center is being built near Indianapolis, Foran said, with completion expected in early 2015. McMillon said overall e-commerce sales were up 24% for the quarter, including unspecified “double-digit growth” in the U.S.