Wal-Mart to Focus on Price After Outlook

Associated Press Modified: May 15, 2007 at 7:09 pm •  Published: May 15, 2007

Wal-Mart Chief Executive Lee Scott warned earnings in the current quarter could fall short of Wall Street expectations and said Tuesday that the company will focus on prices this summer in a bid to rekindle sales in U.S. stores.

The tepid outlook from Wal-Mart - considered a barometer for the retail industry - could serve as a warning bell that rising gasoline prices and a weakening housing market will continue to erode consumer spending in the coming months. Home Depot Inc. reported a 29.5 percent drop in first-quarter profits on a slight increase in sales the same day.

Wal-Mart Stores Inc. reported an 8 percent gain in its fiscal first-quarter earnings, meeting profit expectations with the help of cost controls and strength in its Sam's Club warehouse stores and international businesses.

The world's largest retailer said it expects second-quarter profits of 75 cents to 79 cents per share. Analysts surveyed by Thomson Financial are looking for a profit of 79 cents per share for the period, which ends July 31.

"Quite honestly, we're not satisfied with our overall performance," Scott said during a pre-recorded conference call. Sales and profits for the quarter were "not where we would have expected to be nor where we believe we should be."

"You will see us be more committed than ever to price leadership," Scott said.

Wal-Mart is losing market share after a shaky attempt last year to offer trendier, pricier fashions like skinny jeans, which failed to garner broad customer appeal. Wal-Mart began to shift its focus back to lower priced merchandise last holiday season.

Robert F. Buchanan, retail analyst with A.G. Edwards & Sons, said apparel continues to be a problem for Wal-Mart.

Company officials told investors Tuesday that they won't see an improvement until the back-to-school season. Meanwhile, department stores like J.C. Penney Co. and discounters like Target Corp. have improved their fashion mix, striking up exclusive deals with designers.

"Wal-Mart is continuing to fail to properly interpret the fashion trends of their core low-income customers," said Buchanan, who rates the share a "hold".

Buchanan also said he finds Wal-Mart workers, called associates in company parlance, less motivated to help customers now than in the past 24 years that he has covered Wal-Mart.

Goldman Sachs, in a research note, said the focus on low prices could erode gross profit margins at Wal-Mart and at other retailers that may feel pressure to follow suit.

Goldman's note added that "lowered guidance from Home Depot this morning and an increased aggressiveness on price at Wal-Mart could weigh on retail stocks at large as investors become increasingly skeptical about the macro and competitive environment."

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