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Walmart sees profit rise, but cuts profit outlook

BENTONVILLE, Ark. - Walmart Stores Inc. (WMT) cut its annual profit outlook on Thursday as the world's largest retailer faced another quarter of sluggish sales and traffic declines.

Walmart said it eked out a 0.6 percent increase in second-quarter profit and reported that a key revenue measure was flat in its U.S. discount business, after falling for five straight quarters. The company also reported its seventh straight quarter of traffic declines at its U.S. Walmart stores.

The latest results show the continued challenges facing Walmart's new management team. Doug McMillon, who was head of the company's international division, took over the company as CEO on Feb. 1.

Last month, he named Greg Foran, who was the CEO of Walmart's China business as the head of Wal-Mart's U.S. discount business, which accounts for 60 percent of overall revenue. He replaced Bill Simon, who had held the position since 2010.

The Bentonville, Arkansas-based company is facing challenges from a slowly recovering economy and fierce competition from the likes of online king, dollar chains and grocers. It's also dealing with a shift among shoppers who are looking for more convenience by shopping in small stores or buying on their mobile devices and PCs.

Walmart shoppers, who on average make $45,000 a year, were squeezed by the recession that began at the end of 2007 and have struggled to recover since it ended in 2009. While the job and housing markets are rebounding, Walmart's low-income shoppers have not benefited from the improvements and continue to struggle to stretch their money between paychecks.

Analysts believe that competition will get even more intense heading into the final months of the year. is beefing up its services, like recently expanding its same-day delivery. Meanwhile, rival Target Corp. is stepping up its promotions as it aims to turn around its weak business after being stung by a major data breach.

A bigger Dollar Tree also could put more pressure on Walmart. The dollar-store chain announced last month that it's buying rival Family Dollar for $8.5 billion, significantly broadening its reach.

In February, Walmart announced that it will more than double its expansion plans for its Neighborhood Markets and Wal-Mart Express smaller stores that cater to shoppers looking for more convenience with fresh produce, meat and household and beauty products.

Walmart has also vowed it will be move more quickly to bring e-commerce together with physical stores to better serve shoppers. That means testing same-day grocery delivery in several markets and rebuilding its e-commerce operation to further personalize the online shopping experience of each customer.

Walmart has also been sharpening its focus on everyday low prices and bringing that strategy abroad.

The challenges played out in the company's financial results.

The company reported net income of $4.09 billion, or $1.26 per share, compared with $4.07 billion, or $1.24 per share, in the same quarter a year ago.

Earnings, adjusted to account for discontinued operations, were $1.21 per share. The average estimate of analysts surveyed by Zacks Investment Research was for earnings of $1.21 per share.

The company said revenue rose roughly 3 percent to $119.34 billion from $116.1 billion in the same quarter a year earlier. Analysts expected $119.06 billion, according to Zacks.

Walmart said it now expects earnings per share for the year to be in the range of $4.90 to $5.15 per share. That's down from its previous guidance of $5.10 to $5.45 per share.

"Our guidance includes incremental investments in e-commerce and headwinds from higher health-care costs in the U.S. than previously estimated. This guidance also assumes the effective tax rate will be around 34 percent for the third quarter," said Charles Holley, executive vice president and chief financial officer in the company's earnings statement.

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