February 20, 2018 / 12:21 PM / a year ago

UPDATE 2-Walmart profit drops, online sales slow in key holiday quarter

(Adds details on tax plan, earnings, updates shares)

By Nandita Bose

NEW YORK, Feb 20 (Reuters) - Retail behemoth Walmart Inc on Tuesday reported a lower-than-expected quarterly profit and posted a sharp drop in online sales growth during the critical holiday period, sending its shares slumping more than 6 percent in premarket trade.

Even as comparable sales in the U.S. market rose for the 14th consecutive quarter, Walmart's online sales grew 23 percent in the holiday quarter, slower than the previous quarter's 50 percent increase.

The retailer said much of the online slowdown was planned as it continued to invest in growing the business but also cited operational problems around inventory replenishment that hurt sales growth.

Excluding special items that crimped profits such as restructuring charges and an impact from offering a one-time bonus to employees, earnings came to $1.33 per share in the fourth quarter ended Jan. 31. The average analyst estimate was $1.37 per share, according to Thomson Reuters I/B/E/S.

Net income dropped 42.1 percent to $2.18 billion from $3.76 billion. Consolidated operating income fell 28 percent to $4.5 billion.

In January, the retailer said it would raise the minimum wage for hourly employees to $11 an hour and offered a one-time bonus to store employees as it benefited from the new U.S. tax law.

Analysts said the company's price war with Amazon.com Inc also weighed on margins. In November, Walmart's prices were within striking distance of matching Amazon's for the first time.

Sales at U.S. stores open at least a year rose 2.6 percent, excluding fuel price fluctuations, while the market expected a rise of 2 percent, according to Consensus Metrix. The retailer has recorded more than three straight years of U.S. growth, unmatched by any other retailer.

Total revenue increased 4.1 percent to $136.3 billion, beating analysts' estimates of $134.9 billion.

The company estimated its tax rate would be between 24 percent to 26 percent in the current fiscal year after the new tax law reduced the corporate tax rate to as low as 21 percent.

"We are currently analyzing the accounting impact of the Tax Act, but our analysis is incomplete," the company said in a statement. The retailer recorded a provisional benefit of $207 million for both the fourth quarter and full year.

Wal-Mart forecast earnings of $4.75 to $5 per share for the current fiscal year on an increase of 2 percent in U.S. same-store sales. Analysts expected $5 per share for the same period. Walmart also expects U.S. e-commerce growth for the fiscal year to be around 40 percent.

The stock was down 6.5 percent to $98 in premarket trade. (Reporting by Nandita Bose in New York; Editing by Louise Heavens and Jeffrey Benkoe)

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