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.”B-t-s sales also have been soft because Wal-Mart’s plan to sell more items at regular prices is catching up with it, said Richard Hastings, an analyst at Bernard Sands LLC. “The markdown is a part of the consumer experience,” he said. If shoppers don’t see markdowns, they likely won’t buy anything.
“You don’t do back-to-school without getting very ready for severe markdowns,” said Hastings. “It’s not so easy to do the lean inventory, higher-pricing system.”
As a result, average customer ticket drove comp sales down in the just-completed week, which means less units were sold at higher prices.
Meanwhile, Wal-Mart’s typically budget-conscious consumer is finding that his or her children want to buy expensive electronic items such as iPods or notebook computers for the start of school. Consequently, less money can be spent on new apparel items — a factor that could hurt other apparel retailers, too.
“It’s cooler to have the right gizmo,” said Hastings. As a trade off, kids don’t mind wearing last year’s jeans. “Two years ago, it was really cool to show people you were buying your jeans at Abercrombie & Fitch. This year, it’s going to be cool to buy your portable electronics from the best brands at the highest prices.”
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