VOL. 126 | NO. 159 | Tuesday, August 16, 2011
Wal-Mart's Q2 Results to Offer Consumer Clues
ANNE D'INNOCENZIO | AP Retail Writer
NEW YORK (AP) – Wal-Mart Stores Inc., the world's largest retailer, is expected to announce Tuesday that its second-quarter profit rose with higher international sales and a focus on cutting expenses, but its earnings report also is likely to show weakness remains in its U.S. Walmart stores.
WHAT TO WATCH FOR: How high gas and food prices are affecting Wal-Mart shoppers and whether revenue at stores open at least a year has risen. Wall Street analysts also will want to hear about back-to-school sales, the industry's second most important behind the winter holidays.
Analysts expect Wal-Mart to report quarterly revenue in its U.S. stores open at least a year rose 0.2 percent, including a 0.7 percent decline at Walmart stores and a 5.4 percent increase at Sam's Clubs, according to Factset. The company said in May that it could land between a 1 percent drop and a 1 percent increase. The comparison is an important indicator of retailers' financial health because it excludes stores that recently opened or closed. The figure has fallen for eight quarters in a row at U.S. Walmart stores.
Wal-Mart is operating in a more difficult environment than a year ago on all fronts. Dollar stores, which have expanded their assortments, are blanketing the country. Amazon.com's vast selection and low prices are stealing Wal-Mart's key advantages. Target Corp.'s aggressive push into groceries is also taking away customers, analysts say. And, as household costs keep rising, it is increasingly difficult for low-income Americans – Wal-Mart's core shoppers – to make ends meet.
To fight dollar stores, Wal-Mart is opening 15 to 20 smaller Walmart Express stores this year. Less than one-tenth the size of supercenters, they carry essentials from groceries to general merchandise like hammers and pre-paid phones and they're meant to fit into both cities, where space is expensive, and rural areas that can't support a super store.
In its larger flagship stores, Wal-Mart is continuing to make up for an effort begun more than two years ago to declutter its stores. The move turned off shoppers when couldn't find favorite brands or necessary items, and many went elsewhere. The company has said most of its grocery offerings are back but restocking general merchandise like clothing and home furnishings will take the rest of the year. Wal-Mart also has gone back to its "Everyday Low Price" strategy, the bedrock philosophy of founder Sam Walton, instead of slashing prices temporarily on selected goods.
Meanwhile, even though gas is cheaper than it was in May, it still costs about 84 cents more per gallon than a year ago, and other household costs are increasing. In June, company officials said after their annual shareholder meeting that they are seeing wider swings than ever before as shoppers pull back ahead of each payday and increase their spending afterward.
But the Sam's Club warehouse chain has been a bright spot, enjoying rebounding sales this year with a broader selection of food and other items. Executives have said growth at Sam's Club won't hurt Walmart stores because Sam's Club appeals to wealthier shoppers, with average household incomes of about $75,000 a year. The typical Walmart shopper's household income is $30,000 to $60,000.
Wal-Mart's international business, which produces 26 percent of its revenue, has remained strong, and in June it bought a majority of South African retailer Massmart for $2.4 billion, its first foray into South Africa.
WHY IT MATTERS: Wal-Mart's results are considered a bellwether of consumer spending because the company draws nearly 10 percent of all nonautomotive spending in the U.S. Wal-Mart's shoppers offer clues to the national and world economies.
WHAT'S EXPECTED: Analysts expect net income of $1.09 per share on revenue of $108.12 billion, according to Factset. The revenue figure excludes Sam's Club membership fees.
LAST YEAR'S QUARTER: Wal-Mart earned 97 cents per share on net sales of $103.02 billion, excluding membership fees.
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