The good news for Wal-Mart and its investors is the world's largest retailer posted a higher-than-expected profit in the latest quarter and raised its guidance on what it expects to earn for the full year.
The bad news is that the chain's business continues to head in the wrong direction in the U.S. with same-store sales falling for the fifth consecutive quarter and no clear indication from the company that it knows how to reverse the slide after a series of merchandising missteps and executive changes.
"Wal-Mart has not done the lifting needed to retain aspirational shoppers gained in the throes of the recession. As a result, this has left Wal-Mart exposed to a core lower income customer base that spends cautiously on paycheck week, and not necessarily at Wal-Mart (dollar stores instead)," wrote Brian Sozzi, an analyst with Wall Street Strategies, in a report to investors.
According to Mr. Sozzi, "Consumers reacted with a collective yawn to Wal-Mart's bread and butter price rollbacks in June and July. We believe consumers found stronger assortments in grocery and apparel from Target (TGT is running positive traffic), and surprisingly more attractive price points at traditional grocers."
Mike Duke, president and chief executive officer of Wal-Mart Stores, Inc., said in a press release, "The slow economic recovery will continue to affect our customers, and we expect they will remain cautious about spending," adding "Walmart is committed to our mission of saving people money so they can live better."
The retailer is also going back to some of the tactics that helped it grow its business during most of the Great Recession when many others were seeing declines.
Jeff Stinson, an analyst at Cleveland Research Co., recently wrote that Bill Simon, the new CEO of the U.S. Walmart division, is reauthorizing items discontinued in the chain's SKU rationalization program and bringing back promotional displays to the front of stores.
"We are seeing the 'old' Wal-Mart approach surface on merchandising as well as pricing," Mr. Stinson wrote to investors, according to a recent Bloomberg Businessweek article. "Rebuilding top-line sales looks to be the No. 1 objective."
Mr. Simon said in a recorded message to investors announcing the most recent quarter's results, "We're confident that changes we're making will improve top-line sales by the fourth quarter."
Discussion Questions: What is your assessment of Wal-Mart's performance in the past year or so and what do you expect from the retailer going forward? What does this all mean for competitors to the world's largest retailer?
- Wal-Mart Cuts Costs to Profit but Says Consumers Wary - Reuters/ABC News
- Walmart Reports Second Quarter EPS of $0.97, Ahead of First Call Consensus; Company Raises Full-Year EPS Guidance - Wal-Mart Stores, Inc./Business Wire
- Wal-Mart Shifting Focus to Sales From Margins, Researcher Says - Bloomberg Businessweek