Food, Rx Among Wal-Mart's Best Departments in 1Q

ELLIOT ZWIEBACH

BENTONVILLE, Ark. — Food and pharmacy sales gains at Wal-Mart Stores here helped compensate to some degree for weakness in apparel, home goods and hardlines in the first fiscal quarter that ended April 30, the company said.

While overall comparable-store sales, excluding fuel, were up 0.6% during the quarter, comps at Wal-Mart Stores, encompassing supercenters and discount stores, dropped 0.1%, offset by comp gains of 4.7% at Sam's Clubs.

According to Eduardo Castro-Wright, president and chief executive officer of the Wal-Mart Stores division, the problem was not with grocery-related sales, since food sales at supercenters were up more than 13.4% in the quarter and food comps overall were up in the mid-single-digit range.

“While comps continued to be pressured by softer traffic, comps in grocery, driven by food; in health and wellness, driven by pharmacy; and in entertainment, were at or above plan,” he said in a conference call with analysts last week, “but not enough to offset [weaknesses] in apparel, home and hardlines.”

Net income for the 13-week quarter rose 8.1% to $2.8 billion, while sales jumped 8.3% to $85.4 billion.

On a segment basis, first-quarter sales rose 5.6% at Wal-Mart Stores to $55.4 billion; 5.6% at Sam's Clubs to $10.3 billion; and 18.5% in the international division to $19.7 billion.

“While these are record sales and earnings, we feel there was an opportunity to have done better,” Lee Scott, chairman, president and CEO of Wal-Mart, told analysts in a conference call last week. “The worldwide organization is focused on improved sales and returns.”

The week before it released the quarterly earnings results, Wal-Mart reported its worst monthly comp-store sales figure in 28 years for the month of April, down 3.5%, citing the early Easter holiday, cool weather and pet-food recalls.

During the prerecorded conference call, the company did not mention reports it may be considering an acquisition of Gottschalks, an independently owned department store chain based in Fresno, Calif., that operates 63 locations and 10 specialty stores in California, Washington, Alaska, Oregon, Idaho and Nevada. Reports said Wal-Mart might be interested in the company for its real estate, which includes 38 stores in California — half of them in Northern California, where Wal-Mart has had difficulty finding locations.

During the call, Scott reflected on the company's three-year strategic plan to improve its business, now in its second year. “Some parts [of the plan] have not delivered the desired results yet,” he said, “though we have improved customer service and returns-on-investment, which is critical.

“The core grocery business continues to do very well, with food and consumables leading the way for supercenters and the $4 generic prescription program leading pharmacies to double-digit comps at Wal-Mart and Sam's locations.”

Castro-Wright said Wal-Mart saw increases in labor productivity during the quarter after installing a new front-end scheduling system, “which improved the customer experience by having stores staffed when customers are there, which helped us show better comps” in three of Wal-Mart's six divisions.