Wal-Mart may have gotten its groove back, but an alleged bribery scheme threatens to curtail its progress.
As Wal-Mart reported first-quarter profit on Thursday that beat Wall Street estimates, the world's largest retailer also disclosed that it is expanding an internal probe into alleged bribes at its Mexico unit to include other countries.
Wal-Mart also acknowledged in a government filing that the accusations 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 a list of developments since the scandal was first reported by the New York Times last month. The paper revealed that the company allegedly failed to notify law enforcement after it 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 been reported that federal authorities in both the U.S. and Mexico are investigating Wal-Mart for potential violations of a law that forbids companies from bribing foreign officials. Investors have filed lawsuits against top Wal-Mart executives. And 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 the company 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. The latest results beat the $1.04 per share analysts polled by FactSet were expecting.
Wal-Mart's first quarter was boosted by strong results 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. And its clothing business posted its first sales gain in six years.
The business had been struggling as its core low-income customers had been hard hit by joblessness and other challenges in the down economy. 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 Wal-Mart last year began adding 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. The figure, which beat the 1.4 percent Wall Street estimate, marks the third consecutive quarterly gain for the division after nine straight quarters of declines.
Bill Simon, president of the company's namesake U.S. business, said in a pre-recorded address on Thursday that Wal-Mart's 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. 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.
Still, 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. That's in line with the $1.16 per share analysts expect. 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.
"Wal-Mart has been slapped around, but they're coming back fighting," said Edwards, the principal at the investment management firm Trutina. "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."
Shares rose more than 4 percent, or $2.49 per share, to close at $61.68 Thursday.