BENTONVILLE, Ark. — Wal-Mart Stores here said its customers remain deeply affected by the economy as traffic slowed in its first fiscal quarter.
Despite a 1.1% drop in U.S. comparable-store sales, however, the company said it was able to boost average basket size and achieve record overall sales and earnings for the period, which ended April 30.
Mike Duke, president and chief executive officer, said the chain's U.S. customers “are still concerned about their personal finances and unemployment, as well as higher fuel prices.”
Charles Grom, an analyst with J.P. Morgan, New York, said that after four consecutive quarters of negative comps, frustration is mounting on Wall Street “as to why the world's largest retailer isn't performing better with unemployment at its highest level since the Reagan administration. We are growing increasingly concerned that Wal-Mart has run out of ammunition to drive traffic.”
Grom said the decline in traffic for the second quarter in a row raises questions about how effective the company's remodeling effort, Project Impact, has been, particularly in terms of SKU rationalization — a situation Wal-Mart addressed directly last week with the announcement it was returning “on a fast track” approximately 300 grocery items that had previously been cut out.
Robert S. Drbul, an analyst with Barclays Capital, New York, said Wal-Mart is still executing well for both the short and long term.
Despite the sales challenges, “the company continues to manage the business with discipline,” Drbul said, “and Wal-Mart is well positioned to continue to take advantage of the challenging macro-economic environment as well as maintain gains during an economic recovery.”
Net income for the 13-week quarter increased 9.7% to $3.3 billion, while sales rose 6% to $99.1 billion — rising 1.1% to $62.3 billion at Walmart U.S. stores; 4.6% to $11.7 billion at Sam's Club; and 21.4% to $25 billion at Walmart International.
However, the company said comparable-store sales in the U.S. declined 1.1%, dropping 1.4% at Walmart U.S. and rising 0.7% , excluding fuel, at Sam's Club.
Eduardo Castro-Wright, vice chairman, said Wal-Mart was seeing comp-store increases in snacks, beverages, produce, seafood and dairy, “while dry grocery and consumables were soft.”
Slower traffic contributed to comp-store declines, he pointed out, with customers indicating they are reducing their store visits due to higher gas prices and spending less overall, especially on discretionary items.
Though traffic declined during the quarter, average ticket size was up 200 basis points over the fourth quarter, he added, “so customers are stocking up when they are in our stores.”
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