Wednesday, August 17, 2011

Walmart warns on US weakness

Walmart, the biggest US retailer by revenues, warned on Tuesday that persistent weakness in the US economy was putting pressure on its low income consumers who are increasingly worried about unemployment and becoming more reliant on government assistance.

The struggling US economy is continuing to take its toll on Walmart’s domestic sales as it reported its ninth consecutive quarter of falling sales at US stores open at least a year. Comparable store sales at Walmart in the US, excluding fuel sales and purchases at Sam’s Club stores, were down by 0.9 per cent from a year ago.

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“We remain concerned about the economic pressure on our customers and the uncertain impact it can have on their shopping behaviour,” Bill Simon, chief executive of Walmart’s US business, said. “With this volatility, it is as important as ever to deliver on Walmart’s one-stop shopping promise for broad assortment and every day low prices.”

Walmart, regarded as a bellwether for the US economy, has been trying to improve its domestic performance after more than two years of stagnant same-store sales. Once revered for its “everyday low prices”, dollar stores and have been eating into Walmart’s market share and convincing consumers that they offer better bargains.

In spite of that disappointing stretch, analysts were heartened by signs that sales could soon turn around, as Walmart looks to reassert itself as the retailer with the lowest prices. Shares of Walmart rose 3.64 per cent to $51.80 in mid-morning trading, as its results exceeded analysts’ expectations.

“Theoretically this is a period when Walmart should be thriving,” said Brian Sozzi, retail analyst at Wall Street Strategies. “They have signalled that in the back half of the year they are poised to do well again.”

The company has been working to correct changes it made to its stores and inventory that proved to be unpopular and to branch out with smaller “express” stores that fit better in urban areas. Charles Holley, chief financial officer, said that comparable store sales have been improving in each of the past three months and said they would rise by the end of the year.

However, Mr Holley said that joblessness has surpassed high petrol prices as the top concern of its shoppers and that more of its customers are spending with food stamps and unemployment insurance money. Walmart has been offering products in smaller packages to accommodate shoppers requiring lower prices.

“They are living paycheck to paycheck,” Mr Holley said. “How long can the nation go forward with such a high unemployment rate?”

While such questions persist, Walmart has been retooling its international and online businesses. Last week it said two of its top e-commerce executives would leave the company and that its online leaders in Japan, Canada and the UK would report to executives responsible for those countries, rather than a central online leader.

Walmart has also considered making a bid for Carrefour’s Brazilian business, according to people familiar with the matter, in an effort to prop up its performance there.

International revenues outpaced growth in the US, rising by 16.2 per cent to $30bn in the second quarter. Total revenues were up 5.4 per cent to $109.3bn

Walmart’s net income rose 5.7 per cent year-on-year in the second quarter to $3.8bn, or $1.09 a share. The company narrowed and raised its 2012 guidance to a range between $4.41 and $4.51 a share.