Wal-Mart boosts fight for customers

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IOL pic nov29 walmart trolleys in front of store Reuters File photo: Reuters

New York -

Wal-Mart Stores on Thursday said it was ramping up spending to compete with online retailers and other discounters after US sales took a hit during the holiday sales season.

The world's largest retailer suffered a 0.4 percent fall in US same-store sales in the quarter ending January 31, with customers hampered by severe winter weather, cuts to food stamps and increased payroll taxes.

Results were also marred by write-offs in Wal-Mart's international operations, including charges to cover tax assessments and labor claims in Brazil, the closure of underperforming stores in Brazil and China and the termination of a joint venture in India.

That turned into a 21 percent fall in net profits for the quarter, and the company gave a disappointing forecast for the current period as well.

The US results were a disappointment after Wal-Mart executives vowed aggressive promotions to fend off competitors heading into the crucial holiday November-December shopping season.

Although the company characterised store traffic ahead of the “Black Friday” kick-off as brisk, the results suggested it was unable to sustain the momentum. Traffic at US stores fell 1.7 percent during the quarter from last year.

Quarterly earnings fell to $4.4 billion from $5.6 billion a year ago. Earnings per share fell to $1.37 from $1.68.

Globally revenues were up 1.5 percent to $129.7 billion, but fell shy of analyst expectations.

Stripped of the restructuring and tax charges from Brazil, China and India, and some US operations costs, Wal-Mart said underlying earnings per share were $1.60, a penny above analyst expectations.

Bill Simon, head of Walmart US, said he was disappointed with overall sales in the quarter, but “particularly proud” of some aspects of performance. US stores scored positive comparable sales during the six-week period ending December 27, he said.

But Morningstar analyst Ken Perkins said holiday-sales profits were likely pinched by aggressive discounting.

“Maybe it was an okay Christmas, but it certainly wasn't a blow-it-out-of-the-park Christmas,” Perkins said.

Wal-Mart's president and chief executive Doug McMillon, who took the reins of the company on February 1, said Thursday that the company would accelerate spending on e-commerce and small-store construction to “increase our relevance” to consumers.

Wal-Mart doubled the number of small stores it plans to open in the United States this fiscal year to 270-300 stores, spending an additional $600 million on the growth.

It also will open around 115 new supercentres.

“Customers' needs and expectations are changing. They want to shop when they want and how they want, and we are transforming our business to meet their expectations,” said Bill Simon, Walmart US president and chief executive.

Getting more customers in stores has become a growing challenge, Morningstar's Perkins said. Major competition comes from not only online, but from discount stores like Dollar General and drugstores like Walgreens.

“There's just a lot of things that are pressuring the company right now,” Perkins said.

A report from Credit Suisse Wednesday recommended that an acquisition of Family Dollar “could be the most logical way for Walmart to significantly jumpstart the small-store effort”.

The larger investments were a factor in Wal-Mart's first-quarter forecast of $1.10-$1.20 per share earnings from continuing operations, compared with $1.14 a year ago and $1.34 last quarter.

Charles Holley, executive vice president and chief financial officer, said net sales growth in the current year would be at the low end of the previous projection for 3-5 percent growth.

“We expect economic factors to continue to weigh on our outlook,” he said. “Some of the factors affecting our customers include reductions in government benefits, higher taxes and tighter credit.”

Wal-Mart shares fell 1.8 percent to $73.52 Thursday, the worst performer in the Dow Jones Industrial Average. - Sapa-AFP


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