Same-store sales at Wal-Mart gained 0.5 percent in October. The Bentonville, Arkansas-based company had predicted an increase of as much as 4 percent. Then on Nov. 2 Wal-Mart said this month's sales would be unchanged, the worst showing in more than 10 years.
Investors may have had enough. At least a dozen analysts reduced their earnings estimates after the sales projections, and Wal-Mart shares are down 9.4 percent since Scott announced the back-to-basics move. They have dropped 28 percent since he took over in January 2000. Target Corp., the second-largest U.S. discounter, has climbed 68 percent in that time.
``I wouldn't be happy if I was in five years ago,'' said David Abella, an analyst at Rochdale Investment Management in New York, with $1.4 billion in assets including Wal-Mart shares. ``Investors certainly are expecting more.'' Abella said he bought Wal-Mart shares about two years ago and is holding for the long term.
Wal-Mart will probably report tomorrow that net income rose 3.9 percent to $2.47 billion, or 59 cents a share, in the third quarter ended Oct. 31, said Deborah Weinswig of Citigroup Inc., Institutional Investor's top-ranked retailing analyst. That's less than a third of its 12 percent average profit growth during the past four years.
Six-Year Low
Sales at stores open at least a year increased about 1.4 percent in the quarter, Weinswig estimated. That would be the lowest rise in at least six years. Total sales may have risen 15 percent to $86.8 billion, she said.
The average earnings estimate in a Thomson Financial survey of 21 analysts is 60 cents. Ed Weller, an analyst at ThinkEquity Partners in San Francisco with an ``accumulate'' rating on its shares, cut his third-quarter estimate by 2 cents to 59 cents on Nov. 7. Wal-Mart is ``running out of rationales for weak sales,'' wrote Weller.
Target's third-quarter comparable-store sales rose 4.6 percent, the Minneapolis-based retailer said last week. Its same- store sales have outpaced Wal-Mart's in 11 of the 14 previous quarters.
Wal-Mart shares rose 8 cents to $46.47 on Nov. 10. They've dropped 0.7 percent this year, compared with a 5.4 percent gain by Target and an 11 percent rise by the Standard & Poor's 500 index. Wal-Mart operates 3,900 U.S. stores, including more than 580 Sam's Clubs.
$500 Off
Scott has responded to the slow sales growth by cutting prices heading into the holiday shopping season. The retailer trimmed prices on toys in mid-October and on 50 small appliances and almost 100 electronics items earlier this month, including a $500 reduction on a 42-inch Panasonic plasma television to $1,294.
Wal-Mart also introduced a $4 generic-drug plan to 27 states and plans to add more. The company's online pharmacy experienced ``triple-digit growth'' from the previous year as a result of the drug offerings, Walmart.com chief executive officer Carter Cast said in an interview Nov. 8.
Scott, 57, said on Oct. 24 the company would concentrate on selling basic items after putting too much emphasis on higher- priced fashionable clothes. ``That's not who we are, that's not where the money is going to be made,'' he said at an analysts' conference.
Wal-Mart has begun to ``back off on their push toward higher-end consumers,'' said Rick Rubin, an analyst at Mercantile Bankshares Corp. in Baltimore who helps manage $22 billion in assets including Wal-Mart shares. ``We're hearing them lean on the low-price message once again.''
Gas Prices
Scott declined to be interviewed for this story, spokeswoman Mona Williams said.
Wal-Mart also has blamed high gasoline prices and disruptions caused by store remodeling for the disappointing sales. Yet the company didn't get the boost it should have from falling gasoline prices, said Abella.
The average price of a gallon of unleaded gasoline for the week ended Nov. 6 was $2.20, 26 percent lower than in July.
Wal-Mart's net income rose 9.4 percent and sales gained 9.5 percent for the year ended January 2006, the smallest increase for both in four years. Scott earned $15.7 million in salary, stock options and bonus last year. The company said Scott also was awarded restricted shares tied to revenue growth.
Wal-Mart shares may fall further in the next few months before rallying, said Bernard Sosnick, an analyst at Oppenheimer & Co.
The New York-based Sosnick, who rates the shares a ``buy,'' wrote in a Nov. 7 report that he ``believes strongly'' that store and merchandise improvement will benefit the company in coming years. In the meantime, ``we expect heavy clearance to continue for several months,'' he said.
