It may not last beyond the first quarter of 2012 but, for the first time in a long time, the fortunes of Wal-Mart and Target seem to be on similar upward trajectories.
Wal-Mart Stores Inc. on Thursday reported its best quarterly U.S. comp-store sales performance in three years, a 2.6 percent increase in the three months ended April 27, which was well above the top of the company’s guidance range of flat to 2 percent.
“Improved customer traffic, combined with expanded assortments in general merchandise, resulted in significant progress in apparel, home and hardlines,” said Mike Duke, president and chief executive officer of Wal-Mart on a Thursday conference call with analysts. Wal-Mart leveraged operating expenses for the quarter, which allowed it to invest in its low-price strategy. The retailer said it widened the gap between its prices and those of competitors.
“We’re delivering great value,” Gregg Steinhafel, chairman, president and chief executive officer of Target Corp., said on Wednesday’s call. “We emerged from the recession leaner and healthier than ever.”
What’s behind the strong financial performance at Wal-Mart and Target?
“A major impact for consumers at Wal-Mart is the price of gas,” said David Schick, a retail analyst at Stifel Nicolaus. “Food and fuel can be 20 percent of the Wal-Mart consumer’s budget. Last year, gas was inflating at 20 percent. This year it’s not. Also, more people are going to work. That’s meaningful.”
Wal-Mart and Target’s positioning seems more clearly defined than during the recession. “Wal-Mart has a certain customer and Target has a certain customer,” Schick said. “Both do different jobs with different categories. Both retailers are benefiting from certain internal issues. Wal-Mart has focused on a strategy of price and the consumer has a little more fire power.”
As for Target, Carol Spieckerman, president of Newmarketbuilders, said, the “P-Fresh rollout is finally doing the trick on driving trips and getting shoppers to cross the aisle on their more frequent visits. The timing couldn’t be better as Target launches its latest planned scarcity program, The Shops at Target. It portends of future gains. P-Fresh and The Shops is a killer combination.”
“With J.C. Penney not offering any value equation, consumers are shifting to Macy’s and the promotional chains,” said Walter Loeb, president of Loeb Associates. “The consumer is very much aware of the value theme offered by Wal-Mart and Target. Penney’s has given the others an opening step in.”
“You have to wonder if Wal-Mart and Target haven’t benefited from J.C. Penney’s near-term challenges and Best Buy’s recent distractions,” Spieckerman said. “Wal-Mart and Target have traditionally been portrayed as one another’s direct competitors but the fact is, they compete with many other retailers in various categories.”
Like many retailers, both Wal-Mart and Target suffered along with their customers during the economic downturn. Target during the recession emphasized the “Expect More” part of its “Expect More, Pay Less” message, feeding into the perception among consumers that well-designed, trend-right merchandise comes at a higher cost. Shoppers traded down, impacting overall sales. Wal-Mart was hit hard as its core lower-income shoppers struggled with joblessness, rising gas prices and food inflation.
The retailer switched its everyday low pricing strategy into high gear, which helped drive sales but pressured already thin profit margins.
Now, though, various metrics for both retailers are robust. Wal-Mart’s first-quarter profits were $3.74 billion versus $3.4 billion in the previous year’s quarter. Diluted earnings per share from continuing operations came in at $1.09, above guidance of $1.01 to $1.06 and compared to 98 cents per share from continuing operations last year. Traffic and ticket size were both positive during the 13-week period ended April 27.
Sam’s Club same-store sales, without fuel, rose 5.3 percent for the quarter, while Wal-Mart International grew net sales 15 percent. Constant currency net sales were up 10.9 percent.
Consolidated net sales were $112.3 billion, an increase of 8.6 percent from last year’s $8.9 billion, It’s the largest first-quarter sales increase since the quarter that ended April 2009. Currency exchange rate fluctuations had a negative impact on sales of about $800 million.
Wal-Mart still has some major headaches, though, especially the impact of the scandal stemming from corruption allegations about its unit in Mexico. During the conference call, Duke addressed the allegations, saying the company continues “to strengthen our anticorruption programs around the world. The investigation is ongoing and we are working aggressively to determine what happened, and we will take appropriate action if violations of the law or our policies occurred.”
The two lawmakers leading the probe into the bribery allegations against Wal-Mart said Thursday that they have internal documents that corroborate a New York Times report that said the retail giant’s executives bribed officials in Mexico to expand their presence there and later tried to cover it up. Reps. Elijah Cummings (D., Md.), ranking member of the House Oversight & Government Reform Committee, and Henry Waxman (D., Calif.), ranking member of the House Energy & Commerce Committee, sent a letter to Duke saying their review supports the Times report that Wal-Mart’s former general counsel, Maritza Munich, expressed concern about the independence of a company internal investigation and recommended an independent investigation. After Munich resigned in February 2006, her successor, Alberto Mora, closed the internal investigation without taking action.
“What he has done at Vuitton is really exceptional,” said @gameofthrones’ actress Gwendoline Christie on @mrkimjones’ final show for @louisvuitton. “He has rebooted luxury in terms of making it commercial, viable and contemporary. And most importantly artistic. He has never compromised his artistic vision for the sake of commodity.” (📷: @zefashioninsider)
After seeing a demand for men’s wear from its customers, British contemporary women’s wear label @ariesarise has added a men’s wear component and will launch a unisex collection with @mrporterlive. The 20-piece collection includes jackets, denim, logo T-shirts and more with deconstructed ‘90s vibes. Set to launch on January 18, you can shop the pieces on Aries’ website and on mrporter.com. #wwdfashion
“And so spending so much time with a character who thinks like that, inevitability you try and analyze yourself and go back and think about your own demons and dark chapters that you had in your life,” says @thedanielbruhl of his role in TNT’s “The Alienist.” The show, set in the Gilded Age of New York, also stars Dakota Fanning and Luke Evans. Head to WWD.com to read about how 39-year-old Brühl prepared for the role and why he thinks the show is so relevant to today #wwdeye ( 📷: @Eriktanner)
Now that Celine Dion’s collection has topped $10 million in sales, the pop superstar, fashion icon and newly-minted industry player is eyeing growth in Asia. Read the full report by @tiffanyap, link in bio. #wwdnews #celinedion
“My personal philosophy to beauty is paying attention to oneself. I love to be outdoors, lots of fresh air, trying to take care of yourself as best you can. I always notice that comes through,” says Felicity Jones, the global face of @shiseido-owned @cledepeaubeauteus, which launches today. Head to WWD.com to read more about the actress’ love for beauty and how she prepared for her new role in “The Basis of Sex,” playing the young Ruth Bader Ginsburg. #wwdbeauty (📷: @dandoperalski)
Among the familiar faces at @off____white’s show was a surprise figure: Japanese artist @takashipom, pictured here on Wednesday morning. Other show-goers included @jerrylorenzo, who spoke about his upcoming project: a @nike collaboration for back to school, with designs inspired by his childhood on the West Coast. Sitting in the front row were Future, Don Crawley, @miguel and more. See the rest of the photos on WWD.com #wwdeye (📷: Stephane Feugere)
According to @laurentsai, former “Terrace House: Aloha State” cast member, she didn’t know she was auditioning for the Japanese version of “Real World.” “I was telling a couple of my friends and someone’s like, ‘That sounds a lot like Terrace House.’ I was like, ’No it can’t be.’” Turns out, it was. But Tsai isn’t just a reality star — she’s an illustrator who has worked with Starbucks Japan and most recently, she’s dipping her toes into the fashion world. Head to WWD.com to read about her time on the show, modeling and her art. #wwdeye (📷: @danieldorsa)
More changes are coming to New York Fashion Week: Beginning with the spring 2019 collection, @alexanderwangny will move his New York show to June from September, adopting a biannual schedule with collections shown in June and December. Additionally, the @cfda is planning for an official summer/winter fashion season taking place as soon as June and December 2018. Read more about the upcoming changes on WWD.com. #wwdnews #wwdfashion (📷: @slovekinpics)