Wal-Marts US comparable store sales were flat in Q2

Wal-Mart's US comparable store sales were flat in Q2

If the world’s biggest retailer is a reliable barometer of the state of the consumer economy, it may be some time yet before commentators can utter the word “recovery” with any confidence.

Flat comps in the US and a less than spectacular international performance were the prime messages from Wal-Mart’s second quarter results announcement, despite the positive noises the company made about the remainder of the year.

The big question is how far these numbers illustrate the general state of the world’s consumer markets, and how far they are a reflection of a company that’s not quite fulfilling its potential right now.

The Wal-Mart management is in no doubt: CEO Mike Duke talked of a “challenging retail environment” across all markets, while CFO Charles Holley echoed: “The retail environment remains challenging in the US and our international markets, as customers are cautious in their spending.”

That caution, and its impact on the company’s “below expectations” first-half sales, led to a downgrade of full-year earnings and sales forecasts – a reflection, said Holley, of “current global business trends, and significant ongoing headwinds from anticipated currency exchange rate fluctuations”.

In the US, second quarter sales grew by only just over 2%; Walmart US comps fell 0.3%, but overall comps were flat thanks to 1.7% comps growth from Sam’s Club.

“While I’m disappointed in our comp sales decline, I’m encouraged by the improvement in traffic and comp sales as we progressed through the quarter,” said Walmart US president and CEO Bill Simon.

“The 2% payroll tax increase continues to impact our customer.”

The silver lining came in part from apparel, which over-performed to return a low single-digit positive comp figure.

Simon highlighted “improved fabrics and fit”, and the introduction of “quality brands”, which were drivers for improved traffic and sales.

Children’s wear showed a mid single-digit positive comp, thanks to active wear, shorts and knit tops, while men’s wear’s similarly good performance was credited to the introduction of brands such as Ben Hogan and And1.

Meanwhile, shoes and intimate apparel also showed “strong growth”, fuelling Simon’s belief that the sector’s progress will continue into the second half of the fiscal year.

It was a broadly similar story at Sam’s Club, where home and apparel sales rebounded from the first quarter to a high single-digit comp figure, with apparel taking advantage of the warmer weather to return a low double-digit comp growth figure.

Wal-Mart International delivered the best top-line growth in the company, but its 2.9% sales increase was still less than spectacular – and Wal-Mart International president and CEO Doug McMillon’s explanation was a familiar one.

“Across our international markets, growth in consumer spending is under pressure,” he said.

“Consumers in both mature and emerging markets curbed their spending during the second quarter, and this led to softer than expected sales.”

At the Wal-Mart helm, Duke remains bullish about the months to come, signalling that “we can do a better job, and we will”, but the company’s expectations for the rest of the year remain cautious.

US comps are expected to be “relatively flat” in the third quarter, Sam’s Club is expecting comps in a range of flat to up 2%, and McMillon simply believes International performance will be “better than our results in the first half”.

Amid signs of softer growth in the so-called “emerging” markets of the Far East and Latin America, it could be more familiar destinations that deliver those improvements in the second half of the fiscal year: the eurozone is officially out of recession, while unemployment is down and house prices are up in the UK, home of Wal-Mart’s Asda business.

Can these countries, and even more crucially, the core US market, deliver more buoyant results for the colossus of global retail? Duke and his fellow Wal-Mart executives must be hoping so.