BENTONVILLE, Ark. - Food sales continued to drive the performance of Wal-Mart Stores here last year, even as the company is placing an increasing emphasis on fashion and more high-quality merchandise.
In a recorded message discussing results for the fiscal year ending Jan. 31, the company said total food sales at supercenters grew by 17% in the fourth quarter, while comparable-store food sales were up in the mid-single digits.
Eduardo Castro-Wright, president of Wal-Mart's U.S. operations, reiterated the company's plans to roll out a remodeling effort in 1,800 stores during the next 18 months that will include changes in the food area, as well as changes in apparel and electronics. The new design elements and product assortments are reflected in a prototype that opened last summer in Rogers, Ark.
In addition, he said Wal-Mart was introducing a new concept for the pharmacy departments that will make pharmacists more accessible to customers.
In a presentation at a Citigroup analyst meeting earlier this month, John B. Menzer, Wal-Mart's vice chairman, mentioned that the company now had about a dozen health clinics located inside its stores and that it was exploring the idea of tying the clinics together with the eye care and pharmacy departments. It was not clear if this was the new pharmacy concept of which Castro-Wright was speaking. The company could not be reached for further comment.
At the Citigroup meeting, Menzer also said Wal-Mart was planning to roll out more organic food offerings.
"We started down the path of organic food last year, and I can tell you it is off to a good start, with good success," he said. "Now you're going to see us expand our offerings throughout our discount stores and supercenters to keep up with the direction of our customers."
He said the company has completed a restructuring of its field operations, going from six regional divisions to five. The former regional vice presidents have become regional general managers, with additional responsibilities.
"It's more like the way international is set up," Menzer said. "We're pushing down authority" to be closer to the customer.
Menzer also said the company is "doing great in California," where it only recently began opening supercenters and has encountered some opposition to its expansion. It now has 13 supercenters in the state, and "all stores are exceeding expectations," he said.
He also pointed to a new store in Evergreen Park, Ill., as an example of the company's flexibility. The discount store measures 140,000 square feet - smaller than a typical supercenter - and includes an expanded food offering.
To answer charges that the company has gotten off-message with its new ad campaign focusing on lifestyle images instead of low prices, Menzer said the company is not seeking to attract new customers but instead wants to encourage its existing customers to shop in more areas of the store.
"We're not going upscale," he said, although he conceded that the company's price message is changing.
"Wal-Mart has been too opening-price focused," he said. "We need to be the best-priced, not necessarily the lowest-priced."
The company's mostrecent TV ad campaigns focus on lifestyle themes depicting customers enjoying the company's products, and many of the spots have a much more cosmopolitan feel than previous commercials. Menzer said the company plans to advertise in Vogue magazine again this year, after the company's surprising campaign there last year.
Castro-Wright said in the discussion of year-end results that Wal-Mart also had increased the frequency of its printed circular ads, from 12 times per year to 23 times per year, although the overall page count will be reduced.
"This allows us to be more customer-focused by putting the ad in the hands of our customers closer to key events and holidays," he said.
Despite pressures from higher utility costs and spending constraints on low-income consumers, Wal-Mart said fourth-quarter net income was up 13.4% over year-ago levels, to about $3.6 billion. The company said it was able to leverage its labor costs to achieve greater profitability.
Sales for the quarter were up 8.6%, to about $89.3 billion. Comp-store sales in the U.S. rose 3.1%, including 2.7% at Wal-Mart-banner stores and 5.1% at Sam's Club.
For the year, net income was up 9.4% to $11.2 billion, on a 9.5% increase in sales to $312.4 billion.
In a recorded message, Tom Schoewe, Wal-Mart's chief financial officer, said the company's interest expense could increase as much as $500 million this year and that analysts appeared not to have factored this into their earnings forecasts. The company projected earnings per share of between $2.88 and $2.95 for the current fiscal year, vs. analysts' estimates of about $2.98.