Wal-Mart worries

By: Leonie Barrie - 15 May 2008 11:23

Wal-Mart seems to be in its element right now, luring budget-conscious consumers with its promise of low price value. First quarter profit rose 6.9% to $3.02bn, with sales up 10.3% to $95.3bn, as shoppers flocked through its doors to buy basics like groceries and pharmacy items.

Crucially, though, once they’re under its roof, shopping trolleys at the ready, customers also stop to buy items other than just those they need – and this is what’s helping the world's largest retailer and discounter to buck the general retail trend.

But not only is Wal-Mart benefiting from budget-conscious shoppers trading down: international growth in markets such as Brazil and China has offset slower sales in the US, and tight inventory control has reduced the need for promotions.

“Customers everywhere are concerned about the rising energy costs, food inflation, home values and a number of other factors tied to the global economy,” said Wal-Mart president and chief executive officer H Lee Scott Jr. “Wal-Mart customers value our price leadership more than ever, especially as they try to stretch their money further.”

So far so good. But the one cloud looming on the company’s horizon is whether or not it will be able to grow over the long term.

For the second quarter the company expects same-store sales to range from flat to up 2.0% and earning of between $0.78 and $0.81 per share – so could well be below the $0.81 analysts are hoping for.

US: Global growth pushes Wal-Mart Q1 profit up 6.9%