Wal-Mart rethinks overseas strategy, nixes planned stores
Wal-Mart will slow its growth in China and Brazil in an effort to make current stores more profitable.
Wal-Mart Stores Inc. reported a 5.7 percent increase in second-quarter net income and raised its outlook for the year as the world's largest retailer continues to woo back frugal shoppers by re-emphasizing that it has the lowest prices on everything from clothes to electronics.Skip to next paragraph
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But Wal-Mart said Thursday that its total revenue came in short of Wall Street estimates, and the discounter announced that it would delay store expansion plans in Mexico, its largest international division, as it deals with bribery charges there. Investors, who had sent the stock up 25 percent since mid-May, pushed shares down more than 3 percent on the news.
Wal-Mart is considered an economic bellwether because the retailer accounts nearly 10 percent of nonautomotive retail spending in the U.S. The company said its customers are still being squeezed by economic problems in the U.S. and abroad. In the U.S., Wal-Mart's low-income shoppers are still having trouble stretching their dollars to the next payday, and that financial duress escalated overseas in the latest quarter. The company said what's helped it is a focus on low prices.
"I don't think the economy is helping us," Charles Holley, Wal-Mart's chief financial officer told reporters during a conference call. "Our customer is still very concerned about employment."
Still, Wal-Mart's results offer optimism that the company's namesake U.S. business has turned a corner. Wal-Mart, which thrived during the U.S. recession as more well-off people started shopping at its stores here, had begun to struggle as the retailer's core low-income customers were hit hard by joblessness and other challenges in a slow economic recovery.
Adding to that, Wal-Mart's U.S. stores, which account for 60 percent of the company's revenue, had turned off shoppers by veering away from its "everyday low prices" strategy and focusing more on temporarily slashing prices on select items. It also got rid of popular merchandise in an effort to de-clutter the stores.
Wal-Mart last year began adding back 10,000 products and refocused on keeping prices low throughout the store, backing the strategy with TV campaigns. It has done that by cutting expenses and passing some of the savings on to customers. As a result, revenue at Wal-Mart's U.S. division rose 3.8 percent to $67.35 billion in the latest quarter.
Revenue at stores open at least a year — considered a key measure of a retailer's health because it excludes the impact from stores that open and close during the year — rose 2.2 percent in the division, excluding fuel. The figure, which beat the 2.1 percent Wall Street estimate, marks the fourth consecutive quarterly gain for the division after it experienced nine straight quarters of declines.
Customer traffic increased for the third straight quarter, too. The increase was 0.4 percent but that translated to serving another 80,000 additional customers every day during the latest quarter, says Bill Simon, president of Wal-Mart's U.S. namesake division.
Wal-Mart enjoyed sales gains in nearly every merchandise category except for consumer electronics, which continues to post declines because of deflationary pressures in gadgets. Wal-Mart's return to clothing basics like underwear, jeans and socks continues to pay off. So far this season, key back-to-school clothing categories have enjoyed a 7 percent sales increase.