Wal-Mart on track to reverse 2-year US slump

AP News
Posted: Oct 12, 2011 8:56 PM
Wal-Mart on track to reverse 2-year US slump

Wal-Mart's effort to reverse a two-year sales slump at its U.S. namesake stores is working.

The world's largest retailer said Wednesday during a meeting with analysts that revenue at its namesake stores in the U.S. that have been open at least a year rose three months in a row in July, August and September. Wal-Mart had promised a quarterly increase by the end of this year, ending nine quarters of declines, and Wednesday's news indicates it could make good on that vow in the current quarter, which ends Oct. 28.

"We have had very positive momentum in the back half, especially in the U.S," said Charles Holley, Wal-Mart's executive vice president and chief financial officer. "We have more opportunities to grow more sales in the U.S. and around the world. But we will be deliberate."

Wal-Mart also said it expects its expenses to increase more slowly than its sales for the second year in a row. The last time that happened was 1992, Holley noted. Wal-Mart has vowed to reduce expenses even more aggressively over the next five years and put those savings into reducing the prices its customers pay.

The weak U.S. job market and other economic woes have strained the core low-income shoppers at Wal-Mart's namesake stores in the U.S., while the somewhat higher-income clientele of the company's Sam's Club warehouse stores has been more resilient. Wal-Mart's namesake stores in the U.S. also stumbled in recent years because of mistakes the company made in merchandising and pricing.

The chain, based in Bentonville, Ark., now has restocked thousands of products it scrapped in an overzealous bid to clean up its stores. It's also stopped using gimmicks such as slashing prices temporarily on select items and returned to its "everyday low price" strategy, the bedrock philosophy of founder Sam Walton.

Analysts have been closely watching for an end to the sales declines at Wal-Mart's namesake U.S. stores, which account for 62 percent of the company's total revenue. On Nov. 15, Wal-Mart will report its results for the current quarter.

"The progress is now visible in our business," said Bill Simon, president of Wal-Mart's U.S. stores. "We have confidence in our plan."

Mike Duke, CEO of Wal-Mart, told analysts that high unemployment is the top concern among its U.S. customers and many are still buying store-brand goods instead of national brands or opting for smaller packages to save money.

But the company has noticed that lower gas prices in recent months helped raise consumer spending toward the end of the month. Shoppers are still stretched and fragile, only buying what they need. But that loosening up just a bit was encouraging news after Wal-Mart has seen spending around the paycheck cycle become more pronounced over the past 12 to 18 months.

Economists closely watch how Wal-Mart shoppers are behaving since the company can be a bellwether for broader trends in consumer spending, which accounts for 70 percent of the economy.

In China, Mexico, Brazil with growing markets, Wal-Mart is seeing big opportunities in the rapidly growing middle class.

During the analysts' meeting a few miles from its headquarters, Wal-Mart said it expects its revenue to grow 5 percent to 7 percent in the fiscal year that ends in January 2013.

Additionally, the company outlined plans to open smaller stores in the U.S. and add more square footage overall around the world. Wal-Mart expects to add between 36 million to 39 million square feet globally this fiscal year and 45 million to 49 million square feet next year. It will cut capital spending 7.4 percent in the U.S. next fiscal year but increase capital spending abroad by 12 percent.

Wal-Mart also offered analysts a peak into its holiday strategies. It will add a free shipping alternative to fuel online sales. Customers who spend more than $45 online on clothing and consumables like food can get their bundled purchases shipped free to their home in three to five days. This is the first time Wal-Mart has offered permanent free shipping to customers' homes. The company also plans to spend twice as much on holiday advertising for TV as it did last year. That will help promote its new holiday layaway program, which starts Monday.

Shares rose 48 cents to close at $55.20.