Wal-Mart Expects A Challenging Holiday


While Wal-Mart Stores reported third-quarter profits that were better than expected, sales weren't so hot: Comparable-store sales fell 0.5% for the quarter in the U.S., even as traffic increased. The Bentonville, Ark.-based chain blames deflation in grocery and electronics prices for the decline. And with consumers still struggling and worried, it predicts its same-store results in the U.S. will be flat to down 1% for the current quarter.

Total sales for the third quarter inched up 1.1%, and profit for the period rose to $3.24 billion, up from $3.14 billion.

"Our Walmart U.S. top-line sales performance for the third quarter was below our expectations and below our comp guidance," said Eduardo Castro-Wright, vice chairman of Walmart U.S. in a conference call -- adding that customer traffic actually gained 1.5% in the quarter, "which indicates the strength of our underlying business." He adds that advertising expenses grew faster than the rate of sales, "as we stepped up our communications across all media. We continue to be aggressive in reinforcing our price leadership message."



The company says that while health and wellness sales were strong, with gains in the mid-single digits and grocery sales increased in the low-single digits, despite deflation, other categories struggled. Sales of home goods were flat, and sales declined in entertainment, especially consumer electronics, as well as apparel.

To illustrate the effect of deflation, Castro-Wright used flat-panel TV sales as an example: "During the quarter, we sold more than 25% more units than last year, but total revenue for flat-panel TVs was down in the low-single digits. The average unit price for flat-panel TVs is down more than 20% versus the same time a year ago."

Overall, the company says that while it feels good about its share gains, "our customers remain concerned about the economy." "Unemployment hit double digits last week, the highest in more than 26 years. Customers continue to tell us they are concerned about their own finances and unemployment. We recognize that some customers may be more cautious in their holiday spending," he says.

That caution was also apparent at Kohl's. The Menomonee Falls, Wis.-based chain has plenty to crow about -- net income jumped 20% to $193 million, compared to $160 million a year ago; sales increased a hefty 6.5% to $4.1 billion; and comparable-store sales advanced 2.4% for the quarter. But despite those encouraging results, the company says it is still expecting rough seas ahead, looking for a comparable-store increase of between negative 1% and positive 2%.

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