Wal-Mart’s lowered same-store sales projection Monday reflects moderating consumer spending habits, and a shift in back-to-school spending, with electronic gadgets threatening to take market share from apparel.
NEW YORK — Wal-Mart’s lowered same-store sales projection Monday reflects moderating consumer spending habits going into the back half of the year, and a shift in back-to-school spending, with hip, electronic gadgets threatening to take market share from apparel.
The retailer said August sales of stores open a year will come in flat to up 2 percent, down from previous estimates of an increase of 2 to 4 percent. Wal-Mart partly blamed the impact of Hurricane Charley, which hit the Southeast in mid August, causing the company to temporarily close 75 area stores. It said a total of 200 stores were affected by the storm.
The news sent shares of Wal-Mart down 1.6 percent Monday to close at $53.80. Wal-Mart’s revision hit the retail sector with the S&P Retail Index falling 1.72, or 0.44 percent, to 385.7. Among individual companies, Kohl’s dropped 1.1 percent to $47.55, while Gap Inc. was off 1.9 percent, closing at $20.23.
With gas prices near an all-time high and the war in Iraq intensifying consumer uncertainty, it’s not surprising to see Wal-Mart reduce its guidance, said Steve Neimeth, a portfolio manager at AIG SunAmerica Mutual Funds. “Energy prices are tied to a large percentage of that customer base, versus higher-end retailers. As energy [pricing] goes down, Wal-Mart should benefit.”
In addition to macroeconomic issues, Wal-Mart’s August comps face a difficult 6.9 percent comparison from last year’s same-store sales, the company said. The shift of the Labor Day holiday into the September reporting period also will negatively impact August comps.
Regarding b-t-s, the company said sales are now tracking below expectations. Lynn Mander, a portfolio manager at Bryn Mawr Trust Wealth Management, thinks the weak b-t-s sales “could have had a bit deeper impact by the gas prices.” Consumers are likely to hold off buying new clothes until a later date, she said.
Wal-Mart’s revised outlook is a different tune from an earlier take on the second half. During a conference call on August 12, Lee Scott, chief executive officer of Wal-Mart, said the “initial response to back-to-school is encouraging and bodes well for the second half of the year.”
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