Wal-Mart Stores Inc. reported Tuesday that fourthquarter net income rose more than 27 percent for the period ending Jan. 31, even as the world’s largest retailer recorded its seventh straight decline in a key sales measure.
Wal-Mart officials also revealed plans to launch a new,small-format store called Wal-Mart Express, which it said is progressing ahead of schedule.
“We expect to open our first Wal-Mart Express stores in the second quarter,” Bill Simon, president and chief executive officer of Wal-Mart U.S., said in a recorded conference call. “This will be a new format for both ruraland urban locations.”
Wal-Mart’s fiscal second quarter runs May-July.
The Bentonville-based retailer is trying to reverse the fallout from its “Project Impact,” which included a reduction of about 15 percent of products on its shelves.
“Some of the pricing and merchandising issues in Wal-Mart ran deeper than we initially expected, and they require a response that will take time to see results,” Mike Duke, president and chief executive officer, said in a statement accompanying the fourth-quarter results.
Wal-Mart reported net income for the period of $6.06 billion, up from $4.76 billion for the same period a year ago. Net sales rose 2.5 percent, boosted by an 8.8 percent increase in the international division and 4.4 percent growth at Sam’s Club, the company’s wholesale club division.
On a same-store basis - those open at least a year - overall U.S. sales fell 1.1 percent, the seventh consecutive quarterly decline. Same-store Wal-Mart sales were down 1.8 percent in the U.S. stores division and up 2.7 percent at Sam’s Club.
The figures do not include the impact of fluctuating fuel prices.
Same-store sales exclude the impact of stores opened or closed during the reporting period. Wal-Mart previously said it expected same-store sales to be between 1 percent down and 2 percent up.
The company predicted flat to minus-2 percent samestore sales for the current quarter in its U.S. operations. For the same period a year ago, same-store sales fell 1.4 percent.
“Our 1.8 percent comp (same-store) decline for the fourth quarter didn’t meet anyone’s expectations. They certainly didn’t meet mine, period,” Simon said on the conference call.
Wal-Mart’s stock fell $1.71 a share, or just more than 3 percent, to close at $53.67 on the New York Stock Exchange. It has traded between $47.77 and $57.90 in the past year.
Simon said general merchandise, and electronics in particular, led to the sales decline in the fourth quarter, which includes the Christmas shopping season. Items such as televisions had continued price deflation, he said.
Wal-Mart had same-store increases in the low single digits in food for the quarter, Simon said.
“We believe the additional assortment we put into grocery increased our relevancy for customers,” he said. “We brought back many opening price-point items that were important to our core customers to help generate traffic and loyalty.”
Brian Sozzi, a retail analyst with Wall Street Strategies Inc. in New York, described Wal-Mart’s situation as “challenging, challenging, challenging.”
“With ticket up slightly,traffic was down about 2.5 percent, lackluster in light of high single-digit percentage gains at dollar stores and positive comps (same-store sales) at Target and Costco,” he wrote in a research note. “Remember, excluding inflation in fresh food and consumables, it’s our view that comps would have been even more in the negative column.
Sozzi said Wal-Mart’s guidance appears to rule out expectations for sales gains in the near term, even as they are compared with year-ago sales declines. The move “underscores the severity of the pricing and merchandising challenges facing the world’s largest retailer,” he said. “Things do not change overnight for a company the size of Wal-Mart.”
John Lawrence, retail analyst with Morgan Keegan & Co. in Memphis, said in an appearance on CNBC television that price deflation in electronics has hurt Wal-Mart and that shoppers have been dealing with a difficult economy. He said he expects improvement over the next 12-15 months.
“International’s doing very well. Sam’s is at $50 billion (in sales). This Wal-Mart U.S. piece has to come along. We think Bill Simon will make this work over time,” Lawrence said.
Deborah Weinswig, analyst with Citi Investment Research & Analysis, said in a research note that gross margin improvement and higher share repurchases offset the lower-than-expected sales.
Simon said that Duncan Mac Naughton, named chief merchandising officer in late January, will work with suppliers to “deliver the broadest assortment possible at the lowest price in the market.”
Despite the results, Simon said he is confident the firm can reverse the sales decline. He said the company has begun removing end caps “to make way for a more robust, proper action alley.”
“I would also add that our sales performance resulted in a decrease in the expense for our incentive plans,” he said. “Going forward, that’s not how I want to reduce our expenses.” To contact this reporter:
Front Section, Pages 1 on 02/23/2011