NEW YORK — Wal-Mart Stores Inc. got an early Christmas gift: its strategy of offering the lowest prices and shoppers’ favorite goods is starting to work just in time for the holiday shopping season
Wal-Mart on Tuesday reported its first quarterly gain in revenue after nine consecutive quarters of declines at its branded U.S. stores by focusing on low pricing and stocking the brands and products that people care most about.
That the world’s largest retailer is turning a corner is a positive sign for the retail industry and the U.S. economy as a whole. Its core low-income shoppers have been particularly hard hit by joblessness and the other challenges of the nation’s weak economy. The results indicate that those most hurt by the economic downturn are willing to spend if you offer them rock-bottom pricing.
Wal-Mart said Tuesday it earned 97 cents per share, or $3.33 billion in the three-month period ended Oct. 31. That compares with 95 cents per share, or $3.43 billion, in the year-ago period. The year-ago results included a tax benefit of a nickel. Net revenue rose 8.2 percent to $109.5 billion.
Analysts had expected 98 cents per share on revenue of $108.86 billion, according to Factset.
Wal-Mart’s U.S. namesake division’s revenue at stores opened at least a year — an indicator of a retailer’s health — rose 1.3 percent, excluding fuel sales. That’s above Wall Street estimates for a 0.3 percent increase and reverses nine straight quarters of declines in the measure, its longest streak ever.
Overall, revenue at stores in its U.S. business opened at least a year rose 1.9 percent, including a 5.7 percent increase at Sam’s Club stores. Analysts had expected a 4.9 percent gain at the Sam’s Club division. Wal-Mart said that the gains in revenue at stores opened at least a year were fueled by an increase in the average ticket.
Sales of food and health and wellness products, sporting goods, and crafts fared well. Clothing sales remain a challenge, and posted another decline, but business is improving.
Wal-Mart has been working to turn around sales at stores open at least a year at its U.S. business, which have been hurt by the economic downturn and missteps the retailer made in its pricing and selection. The business is particularly important to Wal-Mart because it accounts for 62 percent of its total revenue.
Profit margin down
The company, based on Bentonville, Ark., has been restoring thousands of popular products it ditched during an overzealous bid to de-clutter its stores. Wal-Mart, which had strayed by offering low prices only on select items, also has been working to reclaim its reputation as the lowest-price leader by going back to the “everyday” low pricing strategy that was made popular by its founder, Sam Walton.
Although Wal-Mart’s strategy seems to be working, it comes with a cost. The company said that all three areas, including its Wal-Mart U.S. division, Sam’s Club and its international division, saw a decline in profit margins from the impact of its low price focus and inflationary pressures.
Going forward, Wal-Mart executives hope that the company’s campaign to turnaround its business will continue to improve results. But they are cautiously optimistic because Wal-Mart’s core low-income customers are still reeling from the economic downturn. Wal-Mart officials noted that some shoppers have been trading down to lower-priced brands or abandoning products altogether like dairy and meat because they can’t afford it.
As a result, Wal-Mart expects revenue at its U.S. namesake stores opened at least a year to be between unchanged to up 2 percent at its namesake U.S. stores for the current quarter.
“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 pre-recorded call. “We believe it will be more difficult than ever to afford holiday meals for their families.”
Wal-Mart said it expects fourth-quarter earnings results to be in the range of $1.42 per share to $1.48 per share in the fourth quarter. Analysts had expected $1.45 per share. For the full year, it expects a range of $4.45 per share to $4.51 per share. Analysts had expected $4.50 per share, according to Factset.
Like most retailers, Wal-Mart is counting on the upcoming holiday shopping season to help get cost-conscious shoppers spending.
Ahead of the season, Wal-Mart is pounding its low price message hard by guaranteeing customers will get the lowest price no matter when they buy during the season. With its new Christmas Price Guarantee program, shoppers who buy something at its store between Nov. 1 and Dec. 25, but then find the identical product elsewhere for less, can get a gift card in the amount of the difference.
It is also starting its Black Friday specials at 10 p.m. on Thanksgiving, two hours earlier than many of its competitors like Kohl’s Corp., Target Corp. and Macy’s.