Wal-Mart Stores Inc. eked out a rare gain in an important sales measurement during the third quarter, as it reported profits that beat Wall Street expectations Thursday.
But the world’s largest retailer issued a fourth-quarter profit outlook that missed estimates because of expected fierce year-end discounting. The quarter also marked two full years of traffic declines at U.S. Wal-Mart stores.
Macy’s, J.C. Penney and Kohl’s all reported results this week that show shoppers remain cautious heading into the year-end shopping season.
Wal-Mart itself is a barometer of consumer spending, and its challenges reflect the struggles of its low-income shoppers, who are being squeezed by stagnant wages and reduced government food stamps. But Wal-Mart sees potential help: lower gas prices that could put more money into shoppers’ pockets.
To win its share of year-end shopping dollars, Wal-Mart announced an aggressive plan that includes free shipping on the top 100 items and price cuts on 20,000 items. Starting Friday, Wal-Mart will match online prices such as Amazon’s in its stores. Managers of half of its stores were already doing that, but now it’s an official policy.
“Being the price leader is an ongoing priority for us and a commitment to our business,” said Doug McMillon, who took over as CEO in February. “And with every year, that is even more important during the (year-end shopping) season.”
He added that while he’s encouraged by the sales increase at its Wal-Mart stores, he’s still not satisfied with the performance.
Wal-Mart reported earnings of $3.71 billion, or $1.15 per share, for the three months that ended Oct. 31.
The company, which is based in Bentonville, Arkansas, posted revenue of $119 billion in the period, beating Wall Street forecasts. Analysts expected $118.35 billion, according to Zacks.
Wal-Mart’s U.S. discount division posted a 0.5 percent increase in revenue at stores open at least a year. That was the first increase in seven quarters.
Its smaller Neighborhood Markets, which cater to shoppers looking for more convenience and offer groceries, fresh produce and cosmetic items, had a 5.5 percent increase in revenue at stores open at least a year.
During a call with reporters on Thursday, Wal-Mart Chief Financial Officer Charles Holley said the retailer is already seeing some benefit from lower gas prices, which are translating into improved customer traffic in stores. “We all know it can help the average consumer,” he said.
The average gasoline price in the U.S. has fallen for 48 straight days, according to AAA. Drivers are now paying $2.92 per gallon, on average.
Ken Perkins, President of RetailMetrics LLC, believes it will take until December for Wal-Mart and other stores to really benefit from the money saved. It remains to be seen how much.
Macy’s Chief Financial Officer Karen Hoguet told investors Wednesday there’s a correlation between lower fuel price and spending, but she doesn’t believe that the department-store chain will benefit as much since shoppers are shifting more of their purchases to areas like home improvement, health care and gadgets.
“I think customers are choosing to spend their disposable dollars in different ways, and that’s part of the reason why we’re not more optimistic about the lower gas prices,” she said.
J.C. Penney CEO Mike Ullman told investors that he expects customers will still be “very savvy” even if they have more money to spend because of low fuel prices.
Wal-Mart said that it expects fourth-quarter earnings per share to range between $1.46 and $1.56, which includes the negative impact of closing underperforming stores in Japan. Analysts had expected $1.57 per share.
The company expects full-year earnings to be $4.92 to $5.02 per share. Analysts had expected $4.99, according to FactSet.
Shares of Wal-Mart rose 4.7 percent, or $3.74, to close at $82.94.