Bentonville, AR—While Walmart’s third quarter profit just missed expectations, the retail giant reported some good news about its U.S. division: comparable store sales increased 1.3%, ending nine quarters of declines.
Only last month, executives at U.S. Walmart told investors that turnaround initiatives begun last year seem to be coming to fruition. A back-to-basics approach in merchandising along with an aggressive campaign to shore up its image as an “everyday low price” leader combined with holiday-oriented perks such as low price guarantees, layaway and free online shipping options, have helped its domestic business.
“Every business segment is stronger today than it was a year ago, and we delivered solid earnings growth for our shareholders in the third quarter,” said Mike Duke, Walmart’s ceo said. “Our overall performance reflects Walmart’s strategy of driving the productivity loop, reducing expenses and investing in price.”
Low Price Strategy Working?
For the quarter ended Oct. 31, Walmart’s total net income dropped 2.9% to $3.34 billion, or 97 cents a share, from $3.4 billion, or 95 cents a share, in the same quarter last year.
Total revenue increased 8.2% to $109.5 billion, up 8.2% from $101.24 billion a year ago. Comparable store sales even exceeded the retailer’s own forecast. Besides the 1.3% increase at U.S. Walmart, Sam’s Club posted a 5.7% comparable store sales increase.
While Walmart’s income results just missed analysts’ average estimate for 98 cents in earnings, its sales exceeded analysts’ forecast for $108.22 billion.
Since its comparable store sales account for some 98% of all Walmart’s U.S. sales, the increase is key for the retailer. Its international sales were up 20% due in part to recent acquisitions in the United Kingdom, South Africa and currency exchange benefits.
For holiday, Walmart has upped the ante, offering to match any competitor with lower prices—an attempt to lure back budget-conscious consumers who shop at dollar stores. And as Black Friday approaches, Walmart, which has been open on Thanksgiving Day, already lowered priced on some merchandise, and now plans to begin its Black Friday sales at 10 p.m. Thanksgiving night.
The stepped up discounts and promotions are also aimed at lower income consumers who are still hampered by their budgets. Comparable store sales may have risen for four months in a row, but store management said traffic is down from a year ago as shopper on average spent more per visit.
Duke told analysts on a conference call that unemployment, inflation, gas prices etc. continue to concern many of its consumers. In the company’s own survey of mothers, only one in 10 viewed the economy as “good,” he added.
“Our core customer was still impacted by high unemployment and continued uncertainty over the economy, leading to declining consumer confidence,” said Bill Simon, president of Walmart’s U.S. division, in the conference call. “We believe it will be more difficult than ever to afford holiday meals for their families.”
Costs Increase However
To that end, Walmart has opted to absorb some rising food costs, a move that cost the company about 4% in the quarter. Increased spending on its online business also cut into its quarterly profits, too. Unallocated corporate overhead and other expenses jumped about 40.7% to $536 million, mostly due to the retailer’s investment in e-commerce, Jeff Davis, treasurer, reported.
“They were clearly being aggressive in pricing and gaining share, but they didn’t get the leverage on the cost side,” said ITG Investment Research analyst John Tomlinson, noting that the retailer would likely look for more price “givebacks from vendors.”
Looking ahead, the company said it expects its fourth quarter earnings to be in the range of $1.24 to $1.48 a share with comparable store sales flat to up 2%. Analysts’ average estimate calls for earnings of $1.45.
Sales momentum at Walmart U.S. and the Sam’s Club warehouse chain position the company “exceedingly well for the holidays,” Duke added.
For its full year fiscal, Walmart expects earnings between $4.45 and $4.51 a share compared with analysts’ average estimate for $4.50