http://www.marketwatch.com/story/wal-mart-retailers-signal-competitive-holiday-2012-11-15?siteid=bigcharts&dist=bigcharts
Nov. 15, 2012, 3:31 p.m. EST
Wal-Mart, retailers signal competitive holiday
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By Andria Cheng, MarketWatch
NEW YORK (MarketWatch) — With less-than-stellar fourth-quarter outlooks,
Wal-Mart Stores Inc. and other major retailers are signaling a tough
fight this holiday season to persuade cautious consumers to spend more
money.
In addition to Wal-Mart
WMT
-3.63%
, off-price retailer Ross Stores Inc.
ROST
-1.26%
, Victoria’s Secret parent Limited Brands Inc.
LTD
-2.36%
and Children’s Place Retail Stores Inc.
PLCE
-14.19%
also reported fourth-quarter outlooks that may miss analysts’ estimates.
Children’s Place, for instance, cut its full-year outlook and expects
superstorm Sandy, which affected about a third of its business and led
to 280 store closings at a peak, will lead to increased promotions.
Ross, which has outpaced industry average through selling discounted
name brand products, highlighted the difficulty in predicting how
promotional other retailers may become or how macroeconomic and
political uncertainty may hurt consumer spending.
“There’s continuing softening and downshifting in the retail economy,”
said Craig Johnson of Customer Growth Partners, which forecast holiday
sales to rise 2.8%, about half of last holiday season’s rate. “The
slowdown is literally across the board.”
Luxury retailer Saks Inc.
SKS
-0.30%
on Tuesday also cut its sales outlook and expects Sandy, affecting more
than half of its business, to lead to increased promotions.
How Black Friday might shape up
Fourth-quarter outlooks from Wal-Mart to Target suggest a competitive holiday season ahead. MarketWatch’s Andria Cheng reports.
Children’s Place tumbled 14%. Ross was down 1.5%. Wal-Mart, a Dow component, fell 3.4%. Limited dropped 2%.
Still, there are some bright spots. Target Corp.’s
TGT
+1.73%
third-quarter results beat estimates and its fourth-quarter outlook was
in line with expectations, sending its shares up 1.1%. Dollar store
chain Dollar Tree Inc.
DLTR
+5.14%
rose 5.4% after its third-quarter upside eased concerns about slowing demand.
“We continue to view (Target) as an attractive investment,” said Sanford
C. Bernstein & Co. analyst Colin McGranahan. With Wal-Mart, “softer
than expected (same-store sales) growth and elevated inventories will
be the focus, and we believe that (fourth-quarter) estimates are likely
to be lowered.”
He rates Wal-Mart a market perform and Target outperform.
Sears Holdings Corp.
SHLD
+0.10%
and Gap Inc.
GPS
-1.10%
are due to report after the close of regular trading.
Consumers trading down
Wal-Mart, the world’s largest retailer, said consumers continue to trade
down at both its Walmart U.S. and Sam’s Club membership warehouse club,
which caters to a higher-income household than its larger sister chain.
For instance, at Sam’s Club, consumers are switching to chicken instead
of steak to save money. At Walmart U.S., they are buying cheaper
detergent, Wal-Mart Chief Finanical Officer Charles Holley said on a
conference call with reporters.
“The economy remains a little challenging,” said Holley, adding jobs,
cost of energy and rising food prices are the top three concerns of its
customers. “Consumers (worldwide) are starting to be under some kind of
pressure. It’s going to be a very competitive holiday season. Consumers
want to get more for their money.”
That means those who can still afford are buying things in bulk and
larger packs to save money, while lower-income consumers who live
paycheck to paycheck and are stretched at the end of the month are
buying smaller pack sizes, Holley said.
To win holiday sales, Wal-Mart, along with retailers from Target to
Sears, are unveiling promotions or opening doors earlier on Thanksgiving
Day, instead of on “Black Friday,” to kick off holiday sales. The
company, which started its layaway program a month earlier this year,
has seen $300 million in additional layaway demand this year, with
majority of the gain coming from electronics and other entertainment
sales, Holley said.
Add to portfolio
US
: U.S.: NYSE
$
68.72
-2.59
-3.63%
Volume: 103,536
Nov. 15, 2012 4:01p
P/E Ratio
14.56
Dividend Yield
2.31%
Market Cap
$239.71 billion
Rev. per Employee
$208,003
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By Andria Cheng, MarketWatch
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The company plans to increase both its TV and radio advertising and cut
prices and offer promotions in categories from consumable products and
food to apparel and tablets, he said.
Read related retail holiday strategy.
Target, meanwhile, is counting on 5% off its Target card purchases and
exclusive launches such as a designer partnership collection with Neiman
Marcus to lift demand.
Our customers “are continuing to shop with discipline, focusing on lists
and budgets and occasionally splurging on more discretionary items,”
said Target’s merchandising chief Kathryn Tesija, adding Target saw an
increase in trips focused only on need-based items in the third quarter.
“While consumers have increased confidence about their near-term
prospects and personal finances, they have a high level of uncertainty
about the longer term health of the economy and intend to continue
saving and paying down debt.”
For the holiday season, Target’s customers said they plan to spend
slightly more than last year and focus on “value, pricing and
promotions,” she said, adding the season will be “highly competitive and
promotional.”
Both Target and Best Buy Co.
BBY
-0.52%
have plans this holiday to match prices against select online rivals, including Amazon.com Inc.
AMZN
-1.05%
. Wal-Mart doesn’t plan to match online pricing,
Wal-Mart vs Target
Wal-Mart’s profit in the quarter ended Oct. 31 rose to $3.64 billion,
$1.08 a share, from $3.34 billion, or 96 cents, a year earlier. Total
revenue rose 3.4% to $113.9 billion.
The company forecast fourth-quarter profit of $1.53 to $1.58 a share.
Walmart U.S.’s same-store sales are projected to rise 1% to 3%.
Analysts, on average, estimated Wal-Mart to earn $1.07 a share in the
third quarter and $1.59 a share in the fourth quarter, according to
FactSet. Third-quarter revenue missed the $114 billion analysts were
looking for.
Wal-Mart “leaving the high end of its guidance intact suggests margin
pressure is likely” in the fourth quarter,” said ISI Group analyst Greg
Melich.
Third-quarter comparable store sales, excluding fuel impact, rose 1.7%,
including a 1.5% increase at Walmart U.S. and a 2.7% rise at Sam’s Club.
Analysts surveyed by Thomson Reuters estimated a 2.1% increase, with
misses at both U.S. units.
Gross margin narrowed by 0.13 percentage point to 24.5%.
In comparison, Target posted a U.S. comparable sales gain of 2.9%. The company forecast fourth-quarter sales to be up 2% to 3%.
Both retailers also said they don’t expect Sandy to curtail its plan for
the quarter despite store closings. November sales so far have outpaced
Wal-Mart’s expectations, Holley said, adding Walmart U.S. incurred
about $35 million in damages from Sandy.
Walmart International sales rose 2.4% and would have been up 7.6% minus
currency impact. The company said it increased or maintained market
share in most major markets except China. Wal-Mart, under an
investigation of whether it allegedly violated the Foreign Corrupt
Practices Act in Mexico, is also looking at Brazil, China and India that
may also have alleged violations. It incurred $48 million in related
expenses in the third quarter.
Andria Cheng is a MarketWatch reporter based in New York.
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