Wal-Mart pricing bites into margins
Wal-Mart Stores Inc.’s business offers valuable insight into how Americans are reacting in the slow economic recovery: they will spend, but only if they believe they’re getting the lowest prices.
The world’s largest retailer guaranteed the lowest prices this past holiday season. As a result, bargain-hungry shoppers flocked to Wal-Mart in the fourth quarter, helping it to record its first increase in store traffic in at least two years. But the company’s margins suffered.
The new consumer behavior is likely to have an impact on companies of all shapes and sizes as they struggle with how to lure shoppers in with low prices without cutting them so much that it erodes profits. Wal-Mart, which draws nearly 10 percent of all nonautomotive spending in the U.S., highlights the compromise companies have to make when they focus on rock-bottom pricing in the still-weak economy.
In the fourth quarter, Wal-Mart posted its second consecutive quarterly gain in revenue at stores opened at least a year at its Walmart stores in the U.S.
Wal-Mart said Tuesday that revenue at its namesake stores open at least a year rose 1.5 percent in the quarter, slightly below the 1.6 percent gain analysts polled by FactSet had expected. Overall, its U.S. business had a 2.1 percent increase in revenue at stores opened at least a year, including a 5.4 percent rise at Sam’s Clubs.
Net sales, excluding membership fees from its Sam’s Club division, rose 5.9 percent to $122.28 billion. Analysts had been expecting revenue of $123.9 billion.
While sales rose, margins fell.
Net income was $5.16 billion, or $1.50 per share, compared with $6.05 billion, or $1.70, a year ago.
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