NEW YORK — Wal-Mart is missing out on the consumer comeback.
The world’s largest retailer failed to reverse an almost two-year slide in a key revenue measure in its fourth quarter, it said Tuesday, after all but promising in November it would do just that.
Outside its aisles, holiday shoppers spent more, and consumer confidence is now at its highest point in three years. Wal-Mart had fewer customers.
Wal-Mart’s mistakes in merchandising and pricing, along with financial stress on its lower-income customers, forced it to rely on international growth and cost-cutting to post a 27 per cent increase in net income in its fourth quarter.
Wal-Mart’s 1.8 per cent decline in revenue at U.S. discount stores open at least a year, its seventh straight quarterly drop, was worse than feared. That important measurement of a retailer’s health excludes stores that open or close during the year.
“Wal-Mart’s holiday season was lacklustre compared to everyone else,” said Ken Perkins, president of research firm RetailMetrics. “This might be a deeper hole to dig out than (Wal-Mart) had thought.”
For the past year, the discounter has seen customer counts decline as it lost shoppers to rivals like dollar stores for quick trips to buy milk and diapers. Wal-Mart had hoped sweeping changes, from restoring thousands of products it cut and going back to offering low prices across the store, would help sales rise again.
It’s now clear there won’t be a quick fix.
Wal-Mart’s sprawling one-stop shopping format is facing challenges because shoppers are changing the way they buy. They’re buying closer to when they need things and “are happy to make multiple trips” to smaller, more convenient stores to get the best value, UBS analyst Neil Currie said.
Wal-Mart is working with suppliers to develop products in smaller sizes and plans to open 30 to 40 stores this year that are one-sixth the size of a typical Wal-Mart. Analysts say it needs to do more.
Wal-Mart’s disappointing holiday report stood in contrast to positive reports Tuesday from Home Depot Inc., which posted its first yearly revenue increase since 2006, and Macy’s Inc., whose 50 per cent profit increase was helped by strong holiday sales and a tight hold on expenses.
Also Tuesday, The Conference Board said consumer confidence hit its highest level in three years in February as Americans feel more optimistic about their income prospects and the economy.
Wal-Mart’s legendary cost-cutting ability has helped keep its profits rising, but they’re still lagging other retailers’. Perkins predicts fourth-quarter profits for the retail industry should be up 13 per cent, but excluding Wal-Mart, growth is forecast to be even higher, almost 16 per cent.
Wal-Mart posted net income of $6.06 billion, or $1.70 per share, in the quarter ended Jan. 31. That compares with $4.76 billion, or $1.25 per share, a year earlier.
Net sales, excluding membership and other income, increased 2.5 per cent to $115.6 billion.
Excluding one-time items including a tax benefit, earnings were $1.34 per share. Analysts expected earnings of $1.31 per share on net sales of $117.52 billion.
U.S. revenue at stores open at least a year fell 1.1 per cent, dragged down by a 1.8 per cent drop at its namesake discount stores, which account for nearly two-thirds of its business. Analysts had expected a 0.8 per cent increase, according to FactSet.
Over the past year, the company scrambled to add back thousands of products it had culled as part of a renovation of its stores. In recent months, it went back to emphasizing low prices across the store as opposed to splashy discounts on only some items.
Wal-Mart’s funk contrasts with its position at the beginning of the recession in late 2007. Unlike most stores, Wal-Mart thrived. Its core customers — households making less than $70,000 a year — bought more. Affluent shoppers became price-conscious and discovered Wal-Mart’s prices were hard to beat.
Now, dollar stores are in the driver’s seat. Wal-Mart’s CEO and President Mike Duke said in a recorded conference call Tuesday that it would move forward “with even greater urgency in opening small stores.” Chief Financial Officer Charles Holley said it plans 30 to 40 smaller stores, half of them Neighborhood Market stores.
At its U.S. discount stores, electronics sales were weak because of falling prices. Its food business posted gains in the low single digits, and health and wellness products had increases.
But for the overall “consumables” category, which includes food and basic household items like paper goods and shampoo, the company suffered low single-digit declines. That category, which accounts for about 60 per cent of Wal-Mart’s sales, is the heart of dollar stores’ business.
Holley said that the company has restored grocery items it had cut by the fourth quarter, but for general merchandise items like clothing, it would take the rest of the year. Late last year, company executives had said that would be finished by spring.
Wal-Mart’s international business, which accounts for 26 per cent of company revenue, remained a bright spot, and it expects growth in emerging markets to speed up.
Wal-Mart expects first-quarter earnings per share between 91 and 96 cents. Analysts expected 96 cents per share, according to FactSet. The company also forecast that earnings for the year would be between $4.35 and $4.50 per share. Analysts expect $4.45 per share.