NEW YORKNEW YORK— Rising gas prices are adding another obstacle to Wal-Mart Stores Inc.’s campaign to reverse a two-year U.S. sales slump.
Strong overseas revenue, growth at Sam’s Club and Wal-Mart’s specialty – cost-cutting – pushed the world’s largest retailer’s net income up 3 percent in the first quarter, beating Wall Street expectations.
But business at home is still soft. Wal-Mart, whose headquarters is based in Bentonville, Ark., says it is seeing some improvements but needs more time to see whether hammering its low-price message and restocking items it had scrapped can turn around sales.
Wal-Mart offered a cautious second-quarter earnings outlook because of a new headache. It’s worried its low-income customers will spend less at its stores as gasoline hovers around $4 a gallon. They’re already consolidating trips to the company’s discount stores to minimize driving.
Wal-Mart’s fears have deep repercussions, because it’s a bellwether of consumer spending and accounts for nearly 10 percent of all nonautomotive retail dollars spent in the U.S.
“Despite improvements in some areas of the economy, core Walmart U.S customers are still stretched,” said Mike Duke, Wal-Mart’s CEO in a prerecorded conference call Tuesday. “They remain concerned about rising prices for gas, energy and food as well as employment issues. Customers trust us to be their ally in fighting rising gas prices and inflation.”
U.S. Walmart stores, which represent 62 percent of the company’s business, posted their eighth straight quarter of revenue declines at stores open at least a year. The revenue figure compares revenue with the same quarter a year earlier and excludes stores that opened or closed during the year. It’s an important measure of a retailer’s health.
To reverse the declines, Wal-Mart is pushing to recreate the one-stop shopping experience at its super centers, an area it had dominated since the 1990s. That could help it lure shoppers who don’t want to drive around to multiple stores.
To bring back disaffected customers and draw new ones, the chain is in the middle of a massive effort to restock shelves with items it had stopped carrying when it was trying to clean up its stores. Groceries are mostly restocked. Now it’s working on the rest of the store.
Wal-Mart also is touting its return to the “Every Day Low Price” message of founder Sam Walton with a new ad campaign. It had gotten away from that philosophy, instead offering sharp discounts on only relatively few items.
In a prerecorded conference call, company officials said the changes are “gaining traction.” But Charles Holley, Wal-Mart’s chief financial officer, declined to give a timetable on when growth for the key revenue measure would return.
Competitors have been beating Wal-Mart on selection and price. Drugstores and dollar stores, typically located near shoppers’ homes, have expanded their selections to include popular food brands, and offer small-size packages, ideal for shoppers on a budget.
Supermarket chain Aldi, an import from Germany that offers store brands at about half the price of national labels, is also becoming a formidable player, said Craig Johnson, president of Customer Growth Partners, a retail consultancy.
Besides trying to undo its mistakes, Wal-Mart is investing more online as shoppers gravitate toward the Web. It also plans smaller stores called Walmart Express the size of drugstores and less than a tenth the size of its supercenters. Wal-Mart also said Tuesday that it’s scaling back on plans to convert discount stores to supercenters that carry full lines of groceries.
“We just want to make sure we have the assortments right,” Holley said during a separate call with media.
Wal-Mart’s net income rose to $3.39 billion, or 97 cents per share, in the three months ended April 30. That compares with $3.3 billion, or 87 cents per share, in the same period last year.
Revenue, excluding membership fees from Sam’s Club warehouse stores, rose 4.4 percent to $103.41 billion.
Analysts expected earnings of 95 cents on revenue of $102.76 billion, according to FactSet. Wal-Mart’s shares fell 52 cents to close at $55.54.
Wal-Mart’s US division posted a 0.3 percent drop in revenue at stores open at least a year, dragged down by a 1.1 percent drop at its namesake stores. That measure rose 4.2 percent at Sam’s Clubs, which has drawn more customers because of its push to remodel stores and carry better-quality food and other merchandise.
During the latest quarter, groceries and health and wellness items were the star performers. Bill Simon, president and CEO of Wal-Mart’s U.S. division, said the chain is seeing business in basic household items like paper goods and shampoo recover.
But clothing, electronics and home furnishings remained weak. The company said it hasn’t been able to lure grocery customers to shop the clothing aisles.
Wal-Mart’s international business, which produces 26 percent of company revenue, is a bright spot.
The international division’s revenue rose 11.5 percent to $27.9 billion, led by gains in Mexico, China and Chile. The company’s business in Japan was hurt by the earthquake and tsunami.
For the second quarter, Wal-Mart expects earnings per share between $1.05 per share and $1.10 per share. The estimates assume that currency exchange rates remain at current levels. Analysts forecast $1.08 per share.
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