As the company reported first-quarter profit Thursday that beat Wall Street estimates, the world’s largest retailer also disclosed that it is expanding an internal probe into bribes at its Mexico unit to include other countries.
Wal-Mart also acknowledged in a government filing that the allegations could hurt the company and that media coverage of the scandal could harm its reputation as a corporate citizen. The company listed possible scenarios that could arise from an investigation, from fines to criminal convictions.
“The company can provide no assurance that these matters will not be material to its business in the future,” Wal-Mart said in the filing.
Wal-Mart’s disclosures add to list of developments since the scandal was first reported by The New York Times last month.
The paper revealed that the company reportedly failed to notify law enforcement that its own investigators found evidence that officials authorized millions of dollars in bribes in Mexico in exchange for speedier building permits and other favors.
Since then, it’s come out that federal authorities in both the U.S. and Mexico reportedly are investigating Wal-Mart for potential violations of a law that forbids companies from bribing foreign officials. Investors have filed lawsuits against top executives. Some shareholders are planning to vote against the re-election of several board members at the company’s annual meeting on June 1.
“It makes it messier. There’s already a mud pit,” said Patty Edwards, a principal at Trutina Financial, an investment management firm. “The mud gets stickier and deeper the more countries you add to it.”
Wal-Mart’s disclosures come as Wal-Mart posted better-than-expected first-quarter results. Wal-Mart, based in Bentonville, Ark., earned $3.74 billion, or $1.09 per share, in the quarter ended April 30. That compares with $3.39 billion, or 97 cents per share, in the year-ago period. That latest results beat the $1.04 per share analysts polled by FactSet were expecting.
Results were boosted by performance at its namesake U.S. division. The unit turned in its best performance in three years. Customer traffic was up for the second quarter in the row.
In addition, its clothing business posted its first sales gain in six years as shoppers snapped up underwear, workout wear and jeans.
The business had struggled as its core low-income customers have been hard hit by the down economy the past few years.
Adding to that, the unit, which accounts for 62 percent of Wal-Mart’s total net sales, had made some mistakes in veering away from its “everyday low prices” strategy and getting rid of popular merchandise.
But the company added back 10,000 products and refocused on keeping prices low. As a result, sales at Wal-Mart’s U.S. division rose 5.9 percent to $66.34 billion. Revenue at stores opened at least a year — considered a key measure of a retailer’s health because it excludes the impact from stores that open and close during the year — rose 2.6 percent in the division. That’s above the 1.4 percent estimate from Wall Street and the third consecutive quarterly gain after suffering nine straight quarters of declines.
Bill Simon, president of the company’s namesake U.S. business in a pre-recorded address on Thursday, said that its strategy is to give customers a large assortment of products at low prices. “It’s a fairly simple concept, but one that’s critically important to our customers, particularly in challenging economic times,” he said.
The company’s U.S. business wasn’t the only division that posted strong revenue gains. Overall, net sales excluding membership fees from Sam’s Club rose 8.6 percent to $112.2 billion. Sales at Sam’s Club rose 7.9 percent to $13.85 billion. And Wal-Mart’s international business, which accounts for more than a quarter of net sales, posted a 15 percent increase to $32 billion.
Despite the good showing, Wal-Mart executives cautioned that the U.S. economy remains weak, which is squeezing their customers. Job security is still the No. 1 concern among Wal-Mart shoppers. Gas prices have come down, but they’re still high enough to squeeze customers. And many shoppers, the company said, also continue to buy smaller packages at the end of the month when finances are very tight, says Charles Holley, chief financial officer.
Still, the company issued a positive outlook for the second quarter. Wal-Mart said that it expects per-share earnings in the second quarter to be in the range of $1.13 per share to $1.18 per share. Analysts had expected $1.16 per share. The company estimates that its U.S. business will post a gain in revenue at stores opened at least a year of between 1 percent and 3 percent.
“I think if you look at the economy, it’s still tough. It’s a rocky road,” said Edwards, the principal at the investment management firm Trutina. “Wal-Mart has been slapped around, but they’re coming back fighting. You have to watch out for them. They’ve been able to figure things out that will appeal to their core customers, who need them desperately because of the economy.”