Wal-Mart chief executive officer Lee Scott warned yesterday that the retailer's earnings in the second quarter could fall short of Wall Street expectations and said the company would focus on prices this summer in a bid to rekindle sales in U.S. stores.
The tepid outlook from Wal-Mart - considered a barometer for the retail industry - could serve as a warning bell that rising gasoline prices and a weakening housing market would continue to erode consumer spending in the coming months.
For the fiscal first quarter, which ended in April, Wal-Mart Stores Inc. reported an 8 percent gain in its earnings, meeting profit expectations with the help of cost controls and strength in its Sam's Club warehouse stores and in international businesses.
But the world's largest retailer said it expected second-quarter profit of 75 to 79 cents a share. Analysts surveyed by Thomson Financial are looking for a profit of 79 cents a share for the period, which ends July 31.
"Quite honestly, we're not satisfied with our overall performance," Scott said during a prerecorded conference call yesterday. Sales and profit for the first quarter were "not where we would have expected to be nor where we believe we should be."
"You will see us be more committed than ever to price leadership," Scott said.
Wal-Mart is losing market share after a shaky attempt last year to offer trendier, pricier fashions such as skinny jeans, which failed to garner broad customer appeal. Wal-Mart began to shift its focus back to lower-priced merchandise last holiday season.
Robert F. Buchanan, retail analyst with A.G. Edwards & Sons Inc., said apparel continued to be a problem for Wal-Mart.
Company officials told investors yesterday that they would not see an improvement until the back-to-school season. Meanwhile, such competitors as J.C. Penney Co. Inc. and Target Corp. have improved their fashion mix, striking up exclusive deals with designers.
"Wal-Mart is continuing to fail to properly interpret the fashion trends of their core low-income customers," Buchanan said.
He also said he has found Wal-Mart workers less motivated to help customers now than in the last 24 years that he has covered Wal-Mart.
The Goldman Sachs Group Inc., in a research note, said the focus on low prices could erode gross-profit margins at Wal-Mart and at other retailers that might feel pressure to follow suit.