Wal-Mart Gives Chillier Sales Outlook

Reuters ^ | December 15, 2003 | Emily Kaiser

[sarcasm]

CHICAGO (Reuters) - Wal-Mart Stores Inc. (WMT.N: Quote, Profile, Research) on Monday said December sales would likely reach only the lower end of its forecast as more people delayed holiday shopping or bought plastic gift cards, sending its stock down as much as 2 percent.

The gloomier outlook from the world's biggest company cast further doubts on consumer spending in the holiday shopping season and supported ideas that a recovering U.S. economy was helping wealthier households more than lower-income families.

Bentonville, Arkansas-based Wal-Mart said the number of shoppers at its stores last week declined from a year earlier, which it attributed to a trend toward later holiday sales.

It now expects sales at stores open at least a year to reach only the lower end of its forecast for 3 percent to 5 percent growth this month. The outlook prompted some Wall Street analysts to trim their sales estimates and heightened concerns about fourth-quarter earnings prospects.

U.S. consumers, accustomed to last-minute bargains, have been waiting until just before Christmas to finish holiday shopping. The day after Thanksgiving used to be the biggest shopping day of the year, but in recent years the Saturday before Christmas has earned that designation.

The popularity of gift cards, which can be redeemed for merchandise, has added to the last-minute trend and skewed retailers' results because they do not record the revenues until the cards are used.

Many cards are redeemed in January, and some analysts expect that to boost after-Christmas sales.

HAVES AND HAVE NOTS

Many analysts still expect overall holiday sales to show a 5 percent to 7 percent increase over last year as a strengthening economy lifts consumer sentiment and spending.

News of former Iraqi President Saddam Hussein's capture over the weekend is expected to give a further lift to consumer confidence and contributed to stock market gains on Monday.

But Wal-Mart has tried repeatedly to dampen expectations for a blockbuster holiday season, noting that its customers were still buying the lowest-priced items available and holding off on nonessential purchases.

"Wal-Mart remains an important barometer of the financial condition of the average U.S. household," said Richard Hastings, retail analyst with Bernard Sands. "The average Wal-Mart shopper makes much less than the average Wal-Mart analyst. You have to decide who you want to listen to."

Analysts point to a widening gap between low-income and high-income households, noting that luxury chains such as Nordstrom Inc. (JWN.N: Quote, Profile, Research) and Saks Inc. (SKS.N: Quote, Profile, Research) have seen sales soar in recent weeks while Wal-Mart's growth has slowed.

Wall Street was looking for confirmation of that trend when rival Target Corp. (TGT.N: Quote, Profile, Research) issues its weekly sales update after the U.S. stock market closes on Monday.

Target's same-store sales for the week ending Dec. 13 were running "below plan" for the total corporation as well as its namesake discount stores. Among the strongest categories were pharmacy, domestic, household, and home entertainment.

The Minneapolis company has said it expects December same-store sales growth of 5 percent to 7 percent at its discount stores.

Target, which carries more trendy merchandise than Wal-Mart does, has recorded stronger sales growth in recent months.

EARNINGS AT RISK?

Prudential Securities retail analyst Wayne Hood said some analysts may trim their fourth-quarter earnings forecasts for Wal-Mart because of the slower sales, although he maintained his estimate of 63 cents per share, a penny below the consensus of analysts polled by Reuters Research, a unit of Reuters Group PLC.

Hood lowered his December same-store sales forecast for Wal-Mart to 3.1 percent from 4.1 percent.

December is the biggest shopping month of the year. Last year, Wal-Mart recorded only a 2.3 percent gain in December same-store sales.

Wal-Mart shares fell $1.76, or 3.35 percent, to $50.74, and Target slid $1.65, or 4.26 percent, to $37.12, both on the New York Stock Exchange. The Standard & Poor's retailing index (.GSPMS: Quote, Profile, Research) edged down 1.75 percent.

On a recorded message updating sales through Friday, Wal-Mart said the best-selling categories last week included food, pharmaceuticals, toys, infants' merchandise, girls' clothing, and paint.

[redhead]

Better tell this to the mobs of shoppers filling their carts and buying bicycles, guitars, and fish tanks (and all the other toys) at WalMart and Target yesterday. I have never seen Mankato's (MN) stores so crowded.

[sarcasm]

Are you accusing Wal-Mart of lying?

[Soren]

That just goes to show that anecdotes and personal observations, while interesting and useful to some extent, don't always give an accurate picture of what is happening on average.

[doodad]

My understanding is that high end stores are having a bang up year. My jeweler can attest to that. It is only the discounters that can't move their cheap chinese and mexican crap. Clark Howard had a source for the info.

[sarcasm]

I have the feeling that low income people are tapped out.

[camas]

all the "low end" stuff for "poor" people went to layaway. if they can pay for these items walmart will have a good year.

[eureka!]

"The popularity of gift cards, which can be redeemed for merchandise, has added to the last-minute trend and skewed retailers' results because they do not record the revenues until the cards are used. Many cards are redeemed in January, and some analysts expect that to boost after-Christmas sales. "

I heard this too. It will be a fine season for the retailers....

[azcap]

This is the same thing the major retailers always say to keep Wall Street's expectations low. This way when things turn out better than they hinted they can have a "surprising upswing." Quarter after quarter, year after year it is the same gimmick. It's like how women's dress size numbers keep going down but the size of the dress stays the same.

[Katya]

I didnt realize they recorded the earnings later....sounds like some form of Enron accounting. Geez...they get the consumers money, don't part with any merchandise, and only fork over a small plastic card, which may or may not EVER be used! Strange...

[chaosagent]

"The popularity of gift cards, which can be redeemed for merchandise, has added to the last-minute trend and skewed retailers' results because they do not record the revenues until the cards are used."

This doesn't seem to make sense. They have the money. Why isn't it revenue?

What if I buy a gift card for $100 and then never redeem it?

What if 10,000 people do this?

What happens to the $1,000,000 if it isn't revenue?

[John W]

The seasonal shopping reports are now complete.We had the "Thanksgiving Weekend Up,Prospects Great" about three weeks ago.Followed,as usual,by this.

[Salvation]

Crowded stores here in Oregon too! In fact, the store is expanding. This story isn't ringing true in my judgment.

[cibco]

"I have never seen Mankato's (MN) stores so crowded."

The lutefisk run has tapered off. Time for serious shopping before everyone is froze in for the winter. ;0)

Lutefisk... Mmmmmmmmmmmmmmm...

[azcap]

Their revenue is calculated based on merchandise sold. The cards are treated at tender. So on the books buying a $10 gift card is no different than if you give the clerk a Ten ask for change of 2 Fives. Gift cards have expatriations. When cards expire without being redeemed the value of the expired card must be reported as revenue. It is goofy but balances out in the end.

[AppyPappy]

Face it, it's hard to get worked up about "holiday".

[tubebender]

Analysts point to a widening gap between low-income and high-income households, noting that luxury chains such as Nordstrom Inc. (JWN.N: Quote, Profile, Research) and Saks Inc. (SKS.N: Quote, Profile, Research) have seen sales soar in recent weeks while Wal-Mart's growth has slowed.

I guess we are in a depression...

[Old Professer]

Gift cards have expatriations.

Cheer up, the article says they should be repatriated come January.

[vanmorrison]

Screw Wal-Mart; the shopper's choice for those clamoring to own the nifty products from the People's Republic of China, so the Reds can point more missiles at LA.

I flat won't shop there anymore.

[azcap]

Gift cards have expatriations.

 

I don't know if that was a spellchecker typo or if I have been subconciously indoctrinated by the  "Everything at Walmart is Communist Chinese / Wal-Mart is Evil" mantra and I was implying that anyone who shopped at Walmart should be sent to Red China where they belong.