Year-end positive comp goal seems doable
Blend equal parts easy prior year comparisons, the recent easing of gas prices with the pass through of product inflation , and Walmart could be looking at the recipe for same-store sales growth. If not in the third quarter, then certainly by the fourth quarter, which is the line in the sand the company has drawn for its U.S. business.
“The goal at Walmart U.S. remains clear: deliver positive comps by year end,” Walmart U.S. president and CEO Bill Simon said this week after the company reported a 0.9% comp decline that was just inside the company’s guidance range that envisioned comps declining 1% or increasing 1%. That is the same guidance range Simon shared for the third quarter, so it is conceivable comps could declined for a 10th consecutive quarter and the timing of Halloween could play a factor. Simon noted that the third quarter ends on Friday, Oct. 28, so last minute sales related to Halloween will fall into the fourth quarter.
Despite the considerable gloom related to the U.S. sales performance, Simon asserted Walmart’s straightforward plan – low prices on a broad assortment – is working.
“We’re expanding our assortment of merchandise, backed with Walmart’s every day low price promise. Our customer response is reflected in the improved results we saw in the second quarter,” Simon said.
Improvement is a relative term and in this case Simon highlighted the fact that the 0.9% comp decline was actually the strongest in two years and momentum built throughout the quarter.
“After a difficult May, which was impacted by high prices at the gas pump and severe spring weather, our sales trend improved in June and again in July,” Simon said, noting that the July comp was positive and traffic and ticket improved as the quarter progressed.
Of course, Walmart no longer reports monthly sales so the magnitude of any improvement is unclear, but gas prices eased considerably toward the end of the quarter.
Comp weakness aside, Walmart continues to produce enormous sales volumes and operating profits from its 3,800 U.S. stores. Sales were essentially flat at $64.9 billion and operating profits increased 2.1% to nearly $5 billion.
“Grocery and health and wellness, which represent two thirds of our sales revenue, continue to deliver positive comps,” Simon said. “We also saw trend improvements in all other businesses, except entertainment. This improvement is attributable to our focus on expanding merchandise assortment, price leadership and increased in-stock levels. Weather trends across the country later in the quarter also helped.”