Wal-Mart: We'll Lead on Price

The giant retailer reported mixed results for the third quarter and vowed to show "leadership on price and value"

by Pallavi Gogoi

Expect the price cutting to continue at Wal-Mart Stores (WMT), the world’s largest retailer, at least through Dec. 24 this year. Already on one of its deepest price-cutting sprees in years, Wal-Mart’s CEO Lee Scott said in a recorded earnings call on Nov. 14: "This season, no one will doubt Wal-Mart's leadership on price and value."

The pronouncement came as the giant retailer reported results for the third quarter. Revenue increased 12% to $83.54 billion, while net income rose 11.5% to $2.65 billion. That put profits at the high end of Wall Street expectations, but sales fell short of forecasts, for $84.48 billion. Wal-Mart’s stock rose about 2% in midday NYSE trading Nov. 14, to more than $47. The shares have retreated from their 52-week high of $52.15 reached in October.

Sales gains at stores open at least a year, a common yardstick for retail performance, were disappointing. Same-store sales rose just 1.5%, missing Wal-Mart’s own original forecast for a 2% to 4% gain. The company said that its recent store-remodeling efforts were disrupting business, and the apparel fashions were too trendy for its core customers.

The Bentonville (Ark.) retailer isn’t expecting sales to grow in November, but is clearly determined to lure in customers for the rest of the shopping season. "We are implementing our most aggressive price strategy in our stores for the holiday season," CEO Scott says. Already, Wal-Mart was the first out of the gate, slashing prices on key categories such as toys, electronics and home appliances. More hot deals can be expected on Black Friday, or the day after Thanksgiving, which marks the "unofficial" start of holiday sales (see BusinessWeek.com, 11/14/06, " Holiday Hysteria").

These sales should drive consumer spending overall. Such spending could help lift the U.S. economy too, given that consumer expenditures account for about two-thirds of the economy. Economic numbers released by the U.S. Commerce Department showed that overall retail sales fell a less than expected 0.2% in October. Sales excluding gasoline rose a surprising 0.4% as consumers spent on food, cars, health and clothing.

Gogoi is a reporter for BusinessWeek Online in New York.