Wal-Mart explains how higher wages led to increased earnings

Wal-Mart Stores Inc raised its fiscal-year profit forecast on Thursday and reported higher-than-expected quarterly earnings, an improvement it attributed in part to a better shopping experience resulting from employee wage increases.

Shares of the world’s largest retailer rose more than 4 percent.

Earlier this year, Wal-Mart said it would invest $2.7 billion over two years to increase entry-level wages to $10 an hour, a move the company said has led to cleaner stores, faster checkouts and improved customer service.

“Walmart’s strategic investments are generating traction, which is especially meaningful, given a large portion of its customer base remains challenged,” said Moody’s analyst Charlie O’Shea.

Tweet This Click to share quote on Twitter: "Walmart's strategic investments are generating traction, which is especially meaningful, given a large portion of its customer base remains challenged," said Moody's analyst Charlie O'Shea.

The company bucked a string of weak results by higher-end brick-and-mortar competitors like Target Corp <TGT.N>, Macy’s Inc <M.N> and Kohls Corp <KSS.N>.

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Online sales growth accelerated sequentially for the first time in five quarters, rising 11.8 percent from 7 percent in the first quarter.

However, the higher wages and investments in automated warehouses dedicated to filling online orders hit profitability. Excluding a non-cash gain of $535 million from sale of Wal-Mart’s China e-commerce business, operating income dropped 7.2 percent.

Earnings per share came to $1.07, excluding the gain and other items, in the second quarter ended on July 31. Analysts on average were expecting $1.02, according to Thomson Reuters I/B/E/S.

Wal-Mart raised its fiscal-year earnings outlook to between $4.15 and $4.35 a share from a previous range of $4.00 to $4.30.

Sales at U.S. stores open at least a year rose 1.6 percent, excluding fuel. That was the eighth consecutive quarterly increase and exceeded market expectations for a rise of 1 percent, according to research firm Consensus Metrix.

Store visits increased 1.2 percent.

Revenue rose 0.5 percent to $120.9 billion despite a $2.7 billion hit from a stronger dollar, which reduces the value of overseas sales. International sales fell 6.6 percent to $28.6 billion but increased 2.2 percent on a currency-neutral basis.

Net income attributable to Wal-Mart rose to $3.77 billion from $3.48 billion.

To accelerate its e-commerce business and narrow the widening gap with rival Amazon.com Inc <AMZN.O>, Wal-Mart recently paid more than $3 billion to acquire internet retailer Jet.com, the highest price ever for an online startup.