(New throughout, adds details on grocery segment, comments from
executives on media call)
By Phil Wahba
Feb 20 The struggles of the low-income U.S.
consumer are playing out in Wal-Mart Stores Inc's
The world's largest retailer, which gets more than half its
sales from groceries, on Thursday gave a disappointing full-year
forecast. It blamed sharp cuts in food stamp benefits and higher
payroll taxes that are will hit disposable income for its core
customers. Wal-Mart shares fell 2.2 percent in morning trading.
To combat sluggish sales, broaden its customer base and fend
off aggressive rivals, Wal-Mart said it was doubling the number
of smaller new stores it originally planned to open this year.
Wal-Mart's U.S. comparable sales, e-commerce and sales at
stores open at least a year, fell for the fourth quarter in a
row, slammed by a drop in its grocery business and aggressive
price cuts during a tough holiday shopping season.
The smaller stores, typically one quarter the size of
Wal-Mart's supercenters, allow the retailer to reach new
customers, particularly in urban areas. They also appeal to
shoppers who want to pick up groceries and other staples
mid-week without making a trip to an enormous supercenter.
"The smaller format is a way to address the problems at
grocery, but it's going to take multiple years for it to have a
positive impact on overall results," said Edward Jones analyst
Comparable sales at the smaller stores rose 5 percent last
quarter, compared to an overall 0.4 percent drop in the United
Wal-Mart now plans to open between 270 and 300 small stores
this fiscal year, in addition to the 346 currently in operation,
and is spending an extra $600 million to do so. It had planned
to open 120 to 150 new small stores this year. Wal-Mart operates
Expansion of Wal-Mart's e-commerce will also eat into this
The company expects net sales growth this year to come in at
the low end of its forecast range of 3 to 5 percent.
The cuts last year to benefits under the Supplemental
Nutrition Assistance Program, the largest U.S. anti-hunger
program, have been particularly painful for Wal-Mart. One in
five Wal-Mart shoppers relies on food stamps, according to Cowen
analyst Tal Lev. Wal-Mart also faces stiff competition from
dollar stores for lower-income shoppers.
During the quarter, comparable grocery sales fell by a
"low-single-digit" percentage. In contrast, higher-end
supermarket operators Kroger Co and Safeway Inc
reported increases for their most recent quarters.
Wal-Mart shares fell 2.2 percent to $73.21 in morning
trading on the New York Stock Exchange.
SPEND MONEY TO MAKE MONEY
The retailer plans to increase its spending on integrating
its stores with e-commerce, saying efforts such as using stores
to fill online orders during the holiday season had been
E-commerce sales crossed the $10 billion threshold last
fiscal year and the company is fighting Amazon.com Inc
to win online shoppers.
Investment in both the small stores and e-commerce will hit
profit, and the Wal-Mart said it expects earnings of $5.10 to
$5.45 per share this year. Analysts expect about $5.54 a share,
according to Thomson Reuters I/B/E/S.
Overall revenue in the quarter through Jan. 31, which
included the key holiday season, grew 1.4 percent to $129.7
Wal-Mart Chief Executive Doug McMillon, who took the reins
this month, said the company would use "price investment,"
company-speak for lower pricing, to revive U.S. sales.
At its Sam's Club chain, comparable sales fell 0.1 percent,
while rival Costco Wholesale Corp posted gains.
Overseas, comparable sales fell in key markets such as
Canada and Britain.
The company earned $1.60 per share excluding items, down
from $1.67 a year earlier, but one cent better than expected.
(Reporting by Phil Wahba in New York; Editing by Jilian Mincer,
Lisa Von Ahn, Bernadette Baum and David Gregorio)