March 5, 2021

Wal-Mart Posts a Profit Despite Struggles in the U.S.

Job security replaced gas prices as the top concern for customers at Wal-Mart, the nation’s biggest retailer, in the second quarter.

Shoppers at the low end of the market are under as much pressure as ever, Wal-Mart executives said Tuesday.

“Our core customer continues to be strained, and we still see what we call the paycheck cycle as pronounced as ever, and of course the volatility in the headlines, the volatility caused last week, doesn’t help the customer,” said Charles M. Holley Jr., Wal-Mart’s chief financial officer, in a call with reporters. “We haven’t seen any relief,” he said, and “we’re starting to see jobs as the number one concern among our customers at Wal-Mart.”

Those worries among customers contributed to the ninth consecutive quarter of declining same-store sales at Wal-Mart’s United States stores. The decline, 0.9 percent, was worse than analysts’ forecasts for a 0.6 percent decline.

Net income at the company increased 5.7 percent to $3.8 billion, or $1.09 a share, a penny better than analysts had projected. Its revenue rose 5.4 percent to $109.3 billion.

Analysts said the company’s better-than-expected profit and its brisk international growth were good, but that the United States stores remained problematic. Wal-Mart removed products from its shelves during the recession to appeal to more upscale customers with cleaner aisles. When sales were hurt, it reversed that decision, and is now adding back merchandise to its stores.Executives “noted that trends improved sequentially each month of the quarter. However, second-quarter comps showed little improvement versus the 1.1 percent decline in the first quarter, particularly given expected benefits” from Wal-Mart’s adding back merchandise, and from inflation, said a Sanford C. Bernstein Company analyst, Colin McGranahan, in a note to clients. “Results were relatively uninspiring.”Even within Wal-Mart, there seems to be a divide between rich and poor. Wal-Mart’s Sam’s Club warehouse division had a 5.0 percent increase in same-store sales, excluding the effect of fuel prices; including fuel prices, that rise was 9.6 percent. It was the sixth quarter of improving same-store sales at Sam’s.

Mr. Holley said that while Sam’s executives had been doing a good job, the difference in results was also attributable to the customer profile.

“Sam’s does have a member that has a higher income level than Wal-Mart in the U.S.,” he said.

Meanwhile, the Wal-Mart shoppers in the United States are having a tough time of it.

“The unemployment is actually a lot higher for people who have less education and had less income to begin with — it’s much more severe as you go down the economic scale,” Mr. Holley said. “Negative headlines don’t help consumer sentiment at any level of income, but our customer, also just from a job perspective and a real income perspective, is really stretched. Gas prices have eased a little bit over the quarter, and that has helped our core customer. At the same time, having negative headlines does not help consumer sentiment.”

And William S. Simon, who oversees Wal-Mart’s United States stores, told investors, “We also have seen an increase in the number of customers relying on government assistance for food and necessities for their family” in the quarter.

“They have to be very careful what they spend their money on. They’re buying necessities; they’re not buying discretionary items,” Mr. Holley said of shoppers using public assistance programs.

Wal-Mart executives said it continued to address its customers’ reluctance to spend by adding back in merchandise in a range of product sizes and prices. Mr. Holley said that in the first categories Wal-Mart had done this in — food, health and wellness — it had registered positive comparable-store sales, “so we feel like it’s definitely working.”

Home Depot, which also reported quarterly results on Tuesday, said that despite a lackluster housing market, its profit and sales were strong.

“We saw strength across the store,” Carol B. Tomé, Home Depot’s chief financial officer, said in an interview. That was a result of “storm damage related sales, the garden business coming back as weather improved, the heat we saw across the country which meant we sold a lot of air movement,” she said.

The company said its profit increased by 14.3 percent from a year earlier, to $1.36 billion, or 86 cents a share, three cents higher than what analysts expected. Sales increased 4.2 percent to $20.2 billion, and same-store sales were up 4.3 percent.

The company increased its full-year earnings projections by 10 cents, to $2.34 a share.

Ms. Tomé said that the company’s sales so far in August were in line with what Home Depot had projected.

“We don’t see that our customers are immediately reacting to the stock market,” she said.

Article source: http://feeds.nytimes.com/click.phdo?i=88de7bededca909e930386f6fa8ae019

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