UPDATE: Wal-Mart sees low-price appeal growing in US
Every day low price strategy will be "even more relevant" to US consumers, insists Wal-Mart
Wal-Mart Stores today (21 February) forecast flat US sales in the first quarter of its new financial year but said its low-price strategy will become "even more relevant" to consumers.
Bill Simon, president and CEO of Wal-Mart's domestic business, said a delay in tax refunds for US consumers had hit sales in the early weeks of the quarter. However, he insisted the retail giant's EDLP policy would resonate with cautious US consumers.
"We believe the underlying health of the Walmart US business is sound and sales trends are similar to what we've demonstrated in the last few quarters. However, February sales started slower than planned due in large part, to the delay in income tax refunds. We began seeing increased tax refund check activity late last week in our stores. This resulted in a more normalised sales pattern for this time of the year," he explained after Wal-Mart reported its annual financial results for the year to the end of January.
"As a reminder, last year we had strong first quarter 13-week comps of 2.6%. Due to the slower sales rate in the first few weeks of this year's first quarter, we're forecasting comp sales for the 13-week period from January 26 to April 26, 2013 to be around flat. We continue to monitor economic conditions that can impact our sales, such as rising fuel prices, changes in inflation and the payroll tax increase."
Wal-Mart has trimmed its forecast for company sales growth. In October, it expected annual global sales to increase by 5-7%. It now sees sales rising by 5-6%.
However, he added: "Our every day low price proposition in the marketplace will become even more relevant as our customers adjust to the changing economic conditions and as new customers visit our stores searching for value. We will continue to expand our marketing programmes, including the market basket challenge, to communicate price leadership."
Wal-Mart saw its comparable-store sales, excluding fuel, increase 1.2% in the final quarter of its last financial year. The rate of growth was slower than the year as a whole. Annual comparable-store sales, excluding fuel, were up 2.1%.
Simon said the quarterly comparable sales were at the "low end of our guidance" but said data on Wal-Mart's market share and the sales trends it had reported in the last two years demonstrated the "underlying strength" of its business.
He pointed to Nielsen data that showed Wal-Mart's market share of the "food, consumables and health and wellness/OTC" category was up 40 basis points in the quarter.
Simon said Wal-Mart's US grocery comparable-store sales, including food and consumables, increased at a "low single digit" rate.
"The food business started strong with the Thanksgiving period and the momentum continued through the entertaining season. We had strength across adult beverages, dry grocery and fresh. Overall, we are pleased with the consistency of our core business, as we lapped 400 basis points of inflation in the fourth quarter versus the prior year," he said.
Throughout the year, grocery was a "key traffic driver", Simon said. "Customers have responded to the increased quality of our assortment, including various launches of innovative products. In addition, the investments we’ve made over the past two years to improve the quality and assortment in our fresh meat department resulted in mid single-digit positive comps for the year. We also saw a strong comp improvement in our produce area. We believe we’ve converted many customers to these areas of the store and will continue to generate loyalty in the important traffic-driving areas."
Gross profit increased $556 million versus last year to $20.2 billion, with gross profit rate increasing slightly by 7 basis points.
The operations team continued to deliver results, growing operating expenses slower than sales at 2.1 percent, driving 10.0 basis points of leverage on top of 4.0 basis points of leverage last year. We continue to make great strides in our productivity goals.
Operating income from Wal-Mart's US business grew faster than sales in the fourth quarter and over the year thanks to work on productivity. Simon said: "The savings gained through productivity initiatives allowed us to invest in price, reducing gross margin 16 basis points for the year."
Looking at Wal-Mart's expansion plans in the US in the new financial year, the retailer is set to open 129 supercentres, the same number as last year. It plans to open more smaller stores. Last year, it opened 76 smaller outlets. Simon said Wal-Mart has lined up 100 more of these outlets in its new financial year.
Wal-Mart Stores said that US customers are responding positively to its focus on fresh food, particularly produce, as it looks to reverse weak domestic traffic trends and declining comparable store sa...
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