The world’s biggest retailer, Wal-Mart Stores Inc., is likely to see smallest profit increase in five quarters after Chief Executive Officer H. Lee Scott lowered prices to lure American shoppers squeezed by rising gasoline costs and mortgage payments.
Results at the discounter, which accounts for almost a tenth of spending at U.S. retailers, may add to signs of a slowing U.S. economy and a disappointing holiday season for merchants. The National Retail Federation projected in September a four percent sales gain for November and December, the slowest in five years, and J.C. Penney Co. and Target Corp. cut sales and earnings forecasts last month, media reports said.
“They’re going to be under pressure with everyone else fighting for that dollar,” said Steven Baumgarten, an analyst at PNC Wealth Management in Philadelphia.
Wal-Mart discounted more holiday items this year and lowered prices two weeks earlier than last year, starting toy markdowns at the beginning of October. The retailer took $10 off the price of a Fisher Price Smart Cycle, selling it for $89.88, and is offering two cans of Progresso soup for $3.
Scott, who has overseen five years of stock declines since he became CEO in 2000, is trying to revive revenue after sales at stores open more than 12 months increased by 1.4 percent this year through November two, the slowest pace on record.
Higher food and gasoline costs together with declining home values have taken their toll on retailers, with seven out of 10 reporting October sales below analysts’ estimates last week. The warmest October ever in much of the Northeast hurt sales of fleece clothing, sweaters and jackets.
Wal-Mart last year reported a 2.1 percent gain in same- store sales, the lowest since the company began reporting the data 27 years ago.
For the four weeks through November two, Wal-Mart reported a same-store sales gain of 0.4 percent, near the bottom of its forecast range of a gain of as much as two percent and less than analysts’ estimates. Same-store sales are considered a key gauge of retail performance because they measure the health of established locations.
Wal-Mart has seen its lower-income customers pull back as they cope with rising defaults and foreclosures on subprime mortgages.
Burt Flickinger, managing director of Strategic Resource Group in New York, blamed Wal-Mart’s slowing growth on poor merchandising and allowing competitors to undercut it on price.
“Wal-Mart’s problem is Wal-Mart,” he said. “It’s not the economy, it’s not energy.”
