May 26, 2024

Profit Rises at Wal-Mart, but U.S. Sales Languish

Sales at stores open at least a year fell by 1.1 percent in the quarter, the company said, continuing one of the worst streaks in Wal-Mart’s history.

Over all, earnings beat analyst expectations, helped by sales strength in international stores and at Sam’s Club. The company said profit was $3.4 billion, or 97 cents a share, up from $3.3 billion, or 87 cents a share, a year earlier. Wal-Mart had forecast a profit of 91 to 96 cents a share for the quarter, and analysts expected a 95-cent-a-share profit on average.

Revenue in the period, which ended April 30 and was the first quarter of Wal-Mart’s fiscal year, rose 4.4 percent, to $104.2 billion from $99.9 billion.

Stock in Wal-Mart, which is based in Bentonville, Ark., fell 33 cents, to $55.73 a share in early trading.

In the United States, visits to stores fell, and that pushed the comparable-store sales lower.

Wal-Mart blamed high gas prices and worries about inflation for the decline in traffic and said its customers were still on tight budgets.

“It’s pretty much what we’ve been saying for the last few quarters — our core customer’s still very concerned about gas prices, the cost of living and unemployment,” the chief financial officer, Charles M. Holley Jr., said in a conference call with reporters.

Low prices on groceries during an inflationary period helped sales, Wal-Mart executives said. Same-store sales in grocery were up in the single digits for the quarter in the United States, and Wal-Mart said food prices rose about 1 percent in the quarter as a result of inflation.

Yet Wal-Mart had some trouble getting shoppers into the rest of the store.

In apparel, for instance, “we’re simply not converting enough of our grocery customers to shop apparel,” said William S. Simon, the president and chief executive of Wal-Mart’s United States division, in a conference call with investors.

After flirting with fashion-forward items, Wal-Mart decided to focus on basic clothes, but Mr. Holley said that was not working well yet, and he guessed that Wal-Mart had lost business to competitors over its clothing.

“It’s something that we’ve stumbled with over the last several quarters and we’re not happy with,” he said. “It does start with basics, and for us to be able to sell anything that’s fashionable at all, we really have to get basics down first.”

While “we had a fairly good quarter” with items like T-shirts and underwear, he said, “where we’re still not executing is in the kids’ and the women’s business.”

In other departments, Wal-Mart is piling merchandise in its aisles to signal value, and is stocking items in smaller packages that someone on a budget can afford, in an effort to take market share from dollar stores.

“You see customers that are running out of money at the end of the month going to the smaller pack sizes — they are not necessarily a better value,” Mr. Holley said, but “we have been continuing to work on that, so we have the smaller pack sizes.”

Still, Wal-Mart gave only one example of success with regard to this strategy on Tuesday, and that was in air-fresheners. As of February, Mr. Simon said, “these modular changes focused on bringing back assortment, ensuring opening price points were available in all categories and increased the holding power on the shelf.” As a result, air-freshener sales rose by 8.8 percent at comparable stores from the fourth quarter through the first quarter, he said.

Categories like entertainment, including electronics; hardlines, which are items like hardware and crafts; apparel; and home, comparable sales were all in negative territory.

Wal-Mart said it would continue with its expansion plans in the United States, particularly with smaller stores.

Its grocery-only stores, which are called Neighborhood Markets and are just over one-third the size of a typical Wal-Mart, performed well in the quarter. There, same-store sales were up 4 percent as visits rose. Wal-Mart said that because of those results, it would open another 30 to 40 Neighborhood Markets this year.

The company will also open 15 to 20 Walmart Express stores by the end of the year in urban and rural areas. At about 15,000 square feet, they will sell groceries “along with key general merchandise categories,” Mr. Simon said. They will also function as a depot of sorts for’s items: customers can order something from the extended online inventory, and pick it up at the store.

Analysts noted that at least Wal-Mart’s same-store sales decreases were lessening.

“Top-line results came in somewhat ahead of expectations, reflecting a more moderate decline in U.S. comps,” said Colin McGranahan, an analyst at Sanford C. Bernstein Company, in a note to clients.

Wal-Mart said it expected comparable-store sales to range from down 1 percent to up 1 percent in its second quarter.

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