All eyes on same-store sales

Walmart is due to report second quarter results on Tuesday, and the same-store sales and traffic trends at the company’s U.S. stores division will dominate the discussion.

By now the story is familiar. Key elements of the Project Impact strategy were a bust, customers were alienated, gas prices surged, the economy tanked, competitors got better and U.S. comps suffered as a result. For eight consecutive quarters they suffered, and a ninth could be in order come Tuesday as Walmart’s comp guidance calls for a 1% decline to a 1% increase on top of the prior year’s 1.8% decline.

Walmart has suggested it is gaining traction in its U.S. business following corrective actions and frequently asserted that improving the division’s top-line performance is the greatest priority of senior executives. Even so, the stores division is lumbering through a transition to a strategy with a renewed emphasis on everyday low prices on a broad and in stock assortment and is attempting to do so in a lousy economic climate where consumers lack confidence and they have little reason to feel optimistic about the nation’s economic outlook and their personal situation.

Even if comps were to turn positive and fall within the upper end of the company’s guidance range, the attention will quickly shift to the origin of the increase. It is hard for those outside the company to determine whether any such potential gains are truly the result of strategic initiatives that increase customer traffic and transaction volume or discrete pricing actions in an inflationary environment.

Even with an inability to produce U.S. sales growth, Walmart has managed to consistently deliver on its profit objectives with earnings per share solidly within or a penny or two above the guidance range it provides. That is likely to be the case again in the second quarter, with earnings forecast between $1.05 and $1.10. A company the size of Walmart has a lot of levers it can pull to ensure specific quarterly profit targets are met. The key one being expense control, but in the absence of top-line growth at the company’s largest division the nagging question is how much longer cost cutting can be relied on as a profit driver.

 

Recommended stories

Login or Register to post a comment.