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 The world's largest retailer, which gets more than half its sales
from groceries, on Thursday gave a disappointing full-year forecast.
It blamed sharp cuts in food stamp benefits and higher payroll taxes
that are will hit disposable income for its core customers. Wal-Mart
shares fell 2.2 percent in morning trading.
To combat sluggish sales, broaden its customer base and fend off
aggressive rivals, Wal-Mart said it was doubling the number of
smaller new stores it originally planned to open this year.
Wal-Mart's U.S. comparable sales, e-commerce and sales at stores
open at least a year, fell for the fourth quarter in a row, slammed
by a drop in its grocery business and aggressive price cuts during a
tough holiday shopping season.
The smaller stores, typically one quarter the size of Wal-Mart's
supercenters, allow the retailer to reach new customers,
particularly in urban areas. They also appeal to shoppers who want
to pick up groceries and other staples mid-week without making a
trip to an enormous supercenter.
"The smaller format is a way to address the problems at grocery, but
it's going to take multiple years for it to have a positive impact
on overall results," said Edward Jones analyst Brian Yarbrough.
Comparable sales at the smaller stores rose 5 percent last quarter,
compared to an overall 0.4 percent drop in the United States.
Wal-Mart now plans to open between 270 and 300 small stores this
fiscal year, in addition to the 346 currently in operation, and is
spending an extra $600 million to do so. It had planned to open 120
to 150 new small stores this year. Wal-Mart operates 4,000
super-centers.
Expansion of Wal-Mart's e-commerce will also eat into this year's
profits.
The company expects net sales growth this year to come in at the low
end of its forecast range of 3 to 5 percent.
The cuts last year to benefits under the Supplemental Nutrition
Assistance Program, the largest U.S. anti-hunger program, have been
particularly painful for Wal-Mart. One in five Wal-Mart shoppers
relies on food stamps, according to Cowen analyst Tal Lev. Wal-Mart
also faces stiff competition from dollar stores for lower-income
shoppers.
During the quarter, comparable grocery sales fell by a
"low-single-digit" percentage. In contrast, higher-end supermarket
operators Kroger Co and Safeway Inc reported increases for their
most recent quarters.
Wal-Mart shares fell 2.2 percent to $73.21 in morning trading on the
New York Stock Exchange.
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The retailer plans to increase its spending on integrating its
stores with e-commerce, saying efforts such as using stores to fill
online orders during the holiday season had been successful.
E-commerce sales crossed the $10 billion threshold last fiscal year
and the company is fighting Amazon.com Inc to win online shoppers.
Investment in both the small stores and e-commerce will hit profit,
and the Wal-Mart said it expects earnings of $5.10 to $5.45 per
share this year. Analysts expect about $5.54 a share, according to
Thomson Reuters I/B/E/S.
Overall revenue in the quarter through January 31, which included
the key holiday season, grew 1.4 percent to $129.7 billion.
Wal-Mart Chief Executive Doug McMillon, who took the reins this
month, said the company would use "price investment," company-speak
for lower pricing, to revive U.S. sales.
At its Sam's Club chain, comparable sales fell 0.1 percent, while
rival Costco Wholesale Corp posted gains.
Overseas, comparable sales fell in key markets such as Canada and
Britain.
The company earned $1.60 per share excluding items, down from $1.67
a year earlier, but one cent better than expected.
(Reporting by Phil Wahba in New York; editing by Jilian Mincer, Lisa Von Ahn, Bernadette Baum and David
Gregorio)
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