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The Boston Globe

Business

Walmart sales weakened by dollar’s strength

HONG KONG — Walmart Stores Inc. took a $680 million hit to sales last quarter because of the stronger dollar, showing the risks that companies face when they don’t hedge against swings in the greenback.

The world’s largest retailer’s sales (excluding membership and other income) rose 2.4 percent in the quarter ended July 31 but would have gained 2.8 percent without currency exchange-rate fluctuations.

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Walmart, which operates worldwide in local currencies and reports results in US dollars, does not use hedging, spokesman Anthony Rose said last week.

Walmart’s strategy, which helped profit during periods of weakness for the dollar, may lead to more losses this year. Analysts estimate the greenback, which is at its most volatile in more than a year, will continue to climb against other currencies, hurting companies that generate significant portions of their sales abroad.

‘‘Currency ebbs and flows, and sometimes you’re going to benefit from it,’’ said Brian Yarbrough, an analyst at Edward Jones & Co. in St. Louis. ‘‘Now that the dollar has strengthened, they’re getting penalized a little bit.’’

Some companies have been successful in blunting the effect of currency fluctuations. Yahoo recorded $165 million in gains in the second quarter from steps it took to guard against swings in the Japanese yen, bringing its total benefit from such currency hedges to $438 million.

Yet hedging doesn’t always help. 3M Co. reported a $152 million loss from foreign-currency forward contracts for the first six months of 2013, according to a filing on Aug. 1. The company said it had a gain of $41 million for foreign currency forward/option contracts.

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Walmart said in its earnings statement last week that sales may rise as much as 3 percent in the year ending in January, down from a maximum estimate of 6 percent previously. About a third of the revision is due to currency moves. The company assumes currency rates will remain where they are, Rose said. Annual profit will be as much as $5.30 a share, less than an earlier estimate of a maximum of $5.40.

The Bloomberg US Dollar index, which tracks the currency against 10 major peers, rallied from a four-month low of 1008.61 on June 14 to a three-year high of 1056.33 on July 8. The index averaged about 2.4 percent higher during the three months through July compared with a year earlier.

Analysts surveyed by Bloomberg project 14 of the world’s 16 major currencies will continue to weaken against the dollar in the quarter through December, with only the Brazilian real and the Mexican peso strengthening against the greenback. The risks may grow as Walmart relies more on sales from abroad, with its international division accounting for 29 percent of its revenue in the year through January, the greatest portion ever.

Currencies didn’t always work against Walmart, though. Exchange-rate fluctuations added $4 billion to its sales in the year ended Jan. 31, 2012.

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