Wal-Mart Stores Inc. said U.S. same- store sales will be unchanged in November, the worst performance in more than 10 years, jeopardizing Chief Executive Officer H. Lee Scott’s prediction for a pickup during the holiday season.
Disappointing clothing sales and disarray from store renovations have hurt results, the Bentonville, Arkansas-based company said in a statement today. Scott told analysts last week he expected sales to improve as the company offered holiday merchandise and gasoline prices fell.
Wal-Mart shares declined for the fifth straight day, the longest losing streak in more than two months, dragging down stocks of other retailers. Kohl’s Corp. and Target Corp. also reported lower-than-forecast October results, raising concerns that holiday sales will slow.
“The trends have clearly gotten a little bit worse than investors were expecting” for Wal-Mart, said Rick Rubin, an analyst at Mercantile Bankshares Corp. in Baltimore, with $22 billion in assets including Wal-Mart shares. “Obviously, this has been more than just short-term.” October sales at stores open at least a year gained 0.5 percent, matching Wal-Mart’s estimate released five days ago. Wal-Mart had earlier forecast a gain of 2 percent to 4 percent.
The November estimate means Wal-Mart, the world’s largest retailer, is headed for its worst monthly performance since April 1996. At that time, Wal-Mart said a shift in the timing of Easter hurt results, resulting in a drop of 0.6 percent in same- store sales. In November 2005, U.S. same-store sales increased 4.3 percent.
Trailing Rivals Wal-Mart’s sales trail results at rivals. Target, the second-largest U.S. discount chain, said today October same- store sales gained 3.9 percent. October sales at 54 chains surveyed by the International Council of Shopping Centers rose 3 percent.
Wal-Mart is losing customers to retailers such as Target, said Dan Popowics, an analyst at Fifth Third Asset Management in Cincinnati.
“They’re just having trouble driving sales in their stores,” said Popowics, whose firm manages $21 billion in assets including Wal-Mart shares. “Clearly they’ve somewhat underdelivered in recent months. A lot of competitors are doing better than them.” Shares Retreat Wal-Mart fell 81 cents, or 1.7 percent, to $48.04 as of 11:46 a.m. in New York Stock Exchange composite trading. Target lost 84 cents, or 1.5 percent, to $56.86. Kohl’s, the fourth- largest U.S. department-store company, slipped 15 cents to $70.92.
Wal-Mart needs to re-emphasize selling basic items for low prices, CEO Scott told analysts on Oct. 23-24, saying the company had put too much emphasis on higher-priced clothing.
“It is not our expectations to proceed with 1 percent comps,” he said at the time.
The company has also cut prices on a number of items, including toys and baby food, to boost customer traffic. Last month, Wal-Mart expanded a $4 generic-drug plan to a total of 27 states and plans to add more states “as quickly as possible.” By lowering drug costs, the company believes it can bring more shoppers into its stores to counter slowing sales growth.
In the past year, Wal-Mart has introduced new clothing brands including Exsto for men and Metro 7 and George ME by designer Mark Eisen for women as it tries to lure customers to more profitable merchandise.
Remodeling Hurts Sales Store upgrades have crimped sales more than expected, Wal- Mart has said. In the next two weeks, Wal-Mart said it will finish renovating two-thirds of the 1,800 U.S. stores it’s upgrading to remove clutter and improve amenities like restrooms. It will revamp the remaining 600 locations starting in January.
October sales rose 0.3 percent at Wal-Mart’s main chain of discount stores and supercenters, which sell groceries as well as clothes, home furnishings, toys and other items. Sales at the company’s Sam’s Club warehouse chain increased 2 percent.
Falling gasoline prices should have helped sales more, David Abella, an analyst at Rochdale Investment Management in New York, said earlier this week. Rising rents and job uncertainty in some industries such as automobile manufacturing could be hurting some Wal-Mart customers, he said.
“Some of the lower-income demographic is a little bit more squeezed,” Abella said. His firm has $1.4 billion in assets, including Wal-Mart shares.
Gas Prices Retreat The average price of a gallon of unleaded gasoline was $2.21 yesterday, 4.4 percent lower than a month ago and 11 percent less than a year earlier, according to AAA.
Abella estimates that Wal-Mart shoppers have average annual income of about $40,000, or about $20,000 less than Target.
In September, Wal-Mart had a same-store sales gain of 1.3 percent, compared with a 6.7 percent increase from Target.
