NORTHWEST ARKANSAS — Sam Walton built Walmart by being a low-cost leader.
Mike Duke, Walmart president and chief executive officer, hopes returning to that philosophy will rejuvenate U.S. sales. The retailer posted a seventh consecutive quarter of decreasing same-store sales Tuesday.
“Price leadership is critical to our success. We will reinforce our commitment to deliver every day low prices. That is what Walmart was built on,” Duke said during a prerecorded earnings call.
Total U.S. sales of $71.1 billion accounted for 61 percent of the company’s total quarterly sales of $115.6 billion. Total U.S. sales were down 0.5 percent for the quarter, but overall quarterly sales were up 2.5 percent.
Total annual sales were $419 billion, up 3.4 percent from the previous year.
Same-store sales came in lower than Walmart projections. Bill Simon, president and chief executive officer of Walmart U.S., forecasted in November same-store sales for the quarter to range from minus 1 to plus 2 percent.
Same-store, or comp, sales are based on revenue in stores open for the previous 12 months.
“Our 1.8 percent comp decline for the fourth quarter didn’t meet anyone’s expectations. They certainly didn’t meet mine,” Simon said during Tuesday’s recording.
Simon didn’t predict when sales would turn around, but said he expects disappointing first-quarter sales ranging from negative 2 percent to flat.
Lackluster comp sales are attributed in part to lingering effects from the company’s busted play known as Project Impact initiated in 2008.
Project Impact was Walmart’s effort to decrease store clutter and reduce store inventory 15 percent. Customers unhappy with decreased selection prompted the company to begin reintroducing items early last year.
“Some of the pricing and merchandising issues in Walmart U.S. ran deeper than we initially expected, and they require a response that will take time to see results,” Duke said.
By the end of November, most grocery items were back on the shelves, helping boost food sales in the low single digits, Simon said.
Product analysis for general merchandise, which includes all nonfood items, is ongoing and will take longer than food, Simon said.
“With longer lead time in general merchandise, we will be working on this throughout the year,” he said. “Our goal is to gain traction on these before we get into the general merchandise-rich fourth quarter.”
Charles Grom, J.P. Morgan analyst, said merchandising problems likely will persist in 2011 and could take multiple years to correct.
“It’s plausible that Walmart has alienated/confused its core shopper over the past couple years as it shifted from one strategy to another project,” he stated in a research note downgrading the companies stock to “neutral” last week.
Grom said he credits Walmart for a series of management promotions over the past year including: Simon in June 2010; Charles Holley to chief financial officer Dec. 1, 2010; and Duncan Mac Naughton to chief merchandising officer Jan. 28.
“Moving forward, the new management team could help Walmart correct its recent miscues, if the team acts quickly,” he said.
Citi analyst Deborah Weinswig said Mac Naughton’s extensive retail experience should benefit Walmart.
“We have watched Duncan at increasing levels of responsibility for many years and believe that he has incredible talent and can add a significant amount of value in his new role,” she said.
Simon said Mac Naughton will help implement a four-point plan aimed at boosting sales.
“Under the leadership of ... Mac Naughton, we will continue to work with our suppliers to deliver the broadest assortment possible at the lowest price in the market,” Simon said.
Other keys to the plan are price leadership, more efficient remodel plans and increased customer access points such as mobile apps and online programs.
UBS analyst Neil Currie also points to Walmart’s plans to move into smaller markets, and says it’s not fast enough.
Simon said the first Walmart Express stores will open in the second quarter. The new format will be used in rural and urban locations.
Walmart spokesman Greg Rossiter said the company plans to open 30 to 40 small- and medium-format stores this year, half Neighborhood Markets and half small format. No details were provided to describe the Express stores.
Walmart (NYSE: WMT) shares closed at $53.65 Tuesday, down $1.78 or 3.2 percent from Friday. Markets were not open Monday because of the federal holiday. Stocks traded between $47.77 and $57.90 during the past 52 weeks.