Wal-Mart remains optimistic it will post a positive comparative sales result in the fourth quarter, despite continuing sluggish sales in its US home market.
The company today (16 November) reported that third quarter net sales fell 0.1% to US$62.2bn in the US, while like-for-like sales were down 1.3%.
The lacklustre results for the division come a quarter after the retailer announced plans to rejig a number of its Project Impact initiatives. In its earnings call today, it continued to refine these programmes.
Despite the results, Wal-Mart US president and CEO Bill Simon remained confident that the retailer will achieve positive comparable sales in the division for the fourth quarter. He said that for the fourth quarter the US division is forecasting a range from -1% to positive 2%.
“What’s most important now is that we are in a position of strength for the busiest and most critical season of the year, and we’re expecting a positive comp in the fourth quarter,” he said.
Simon said that while he would have liked third quarter sales to have been higher, “we’re encouraged by the quarterly sequential improvement in comp sales and customer traffic”.
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Last quarter, the company’s US division revealed plans to return to an EDLP model, signalling the failure of its scheme of deep rollbacks in May and June. “The deep rollbacks we featured in May and June did improve price impression but they did not generate the level of top line sales we’d hoped for,” said Simon in August.
In today’s earnings call, Simon said the company “made very good progress on assortment” and “consistently drove promotional intensity”.
“We continue to make progress on our strategy of focusing on EDLP, broadening our relevant assortment, improving in-stock, and driving promotional intensity throughout the store,” he said.
The reversal of much of its SKU rationalisation plans seem to be rewarding the retailer, with Simon saying it has added SKUs back in food and that “customers are responding”.
Simon added that eight weeks after modulars with additional SKUs were completed, the retailer saw an average 39 basis point increase in sales in those categories.
Simon remains Bullish on the company’s expectations for the fourth quarter, saying that the company is “pleased” with the initial response from its Christmas promotions, which it began offering from 1 November.
Wal-Mart’s US Christmas marketing campaign will be focused on “bringing to life how our customers can rely on Wal-Mart to save them money so they can live better,” said Simon.
He added that last year’s comparable sales fell 2% versus the previous year. “Our Wal-Mart culture ensures that we have a correction of errors every season. We’ve built our 2010 plans on lessons learned from last year.”
Simon expects that like back-to-school and Halloween, a lot of the spending will come close to Christmas, and the retailer is “well prepared” to take care of its customer over the holiday season. As part of those preparations, the chain has increased its inventory levels, up 6.5% on the same time last year, which Simon said was “driven primarily by the planned seasonal build-up in the distribution centres”. However, he added that inventory is still below the levels from two years ago.
While Simon remains optimistic about the potential for positive US comparatives in the fourth quarter, Janney Captial Markets analyst David Strasser maintained his comparable sales estimate of -0.5%, as he continues to “worry about the macro environment”.
However the markets seemed to share at least some of Simon’s optimism, with shares in the company up 2.1% at 10:44ET to US$55.08 a share.