Wal-Mart to discuss business at US Walmart stores
Wednesday, October 12, 2011
NEW YORK (AP) — What Wal-Mart Stores Inc. says about how it’s reversing a slump in its namesake U.S. business will be at the front of analysts’ minds at the company’s annual meeting with Wall Street Wednesday.
The discounter also is expected to offer a peek into its winter holiday strategies and a look at the capital spending it plans to do.
The world’s largest retailer announced in August that its second-quarter profit rose 5.7 percent, and it raised its outlook for the year based on strong international sales growth and its cost-cutting efforts.
Business has improved steadily at Wal-Mart’s Sam’s Club warehouse stores, but the company hasn’t been able to stop a two-year sales slump at its U.S. Walmart stores, which account for 62 percent of its total revenue. The company says the weak U.S. job market and other economic woes are straining its core low-income shoppers.
Wal-Mart is a key barometer of U.S. consumer spending, which makes up 70 percent of the economy, including such major expenditures as health care. The retailer rings up nearly 10 percent of all nonautomotive retail dollars spent in the U.S. so any details about how its shoppers are buying everything from cereal to clothing will offer clues about where the economy is heading.
Wal-Mart has promised to reverse nine straight quarters of declines in the key metric of revenue at stores open at least a year by the end of the year. The comparison has fallen less steeply in recent quarters as U.S. customers respond to its turnaround strategies, including changing its merchandising after customers complained about their favorite brands and products disappearing from store shelves.
Wal-Mart started restocking thousands of products scrapped in an overzealous bid to clean up its stores; it stopped using gimmicks like slashing prices temporarily on select item; and it returned to its “everyday low price” strategy, the bedrock philosophy of founder Sam Walton.
Keith Goddard, CEO of Capital Advisors, an investment management firm, said he’ll be looking at how Wal-Mart’s price strategy has affected its profit margin.
“Wal-Mart had lost the perception that they had the lowest prices in town,” Goddard said.
As shoppers paid less for gasoline in recent months they should have been able to spend more on discretionary purchases like home accessories, analysts also said.
“My expectation is it will be good news,” said Madison Riley, managing director at Kurt Salmon, a consulting firm. “I think their efforts are gaining traction.”
Wal-Mart’s shares have risen almost 6 percent since mid-August and 2 percent since the beginning of the year. They are hovering near $55 as investors become more hopeful.
Wal-Mart has been facing increasing competition, particularly from dollar stores, which are offering more name-brand merchandise. Heading into the crucial winter holidays, the climate is expected to get still more competitive.
In response, Wal-Mart, which ditched pay-as-you-go plans in 2006, is rolling out holiday layaway plan that will last from Oct. 17 through Dec. 16. It also is offering more toys for $5 to $10.
Analysts will hope to hear more details such merchandising strategies during the meeting Wednesday in Rogers, Ark., near Wal-Mart’s headquarters in Bentonville, Ark. They’ll also want an update on Wal-Mart’s expansion plans.
Citi Investment Research’s Deborah Weinswig wrote in a research report published Thursday that she expects Wal-Mart to spend more on adding stores in 2012 as it expands abroad and rolls out its small-format stores in the U.S.
It opened the first four Walmart Express stores in the months since June and plans to open 15 to 20 more this year. Walmart Express stores are less than one-tenth as big as supercenters and carry essentials from groceries to general merchandise like hammers and pre-paid phones.
And it has sped up the addition of Neighborhood Market stores, which carry groceries, pharmaceutical products and some general merchandise. There are now about 185.
That’s compared with more than 3,500 Wal-Mart stores in the U.S., of which more than 2,900 are supercenters, plus about 600 Sam’s Club stores. Sam’s Clubs account for about 12 percent of the company’s total revenue.
“We are facing a resizing of the retail footprint,” said Riley. “Looking for ways to address that challenge is a good thing.”
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