Wal-Mart forecast disappoints as grocery business struggles

Thu Feb 20, 2014 12:40pm EST
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By Phil Wahba

(Reuters) - The struggles of the low-income U.S. consumer are playing out in Wal-Mart Stores Inc's grocery aisles.

The world's largest retailer, which gets more than half its sales from groceries, on Thursday gave a disappointing full-year forecast. It blamed sharp cuts in food stamp benefits and higher payroll taxes that are will hit disposable income for its core customers. Wal-Mart shares fell 2.2 percent in morning trading.

To combat sluggish sales, broaden its customer base and fend off aggressive rivals, Wal-Mart said it was doubling the number of smaller new stores it originally planned to open this year.

Wal-Mart's U.S. comparable sales, e-commerce and sales at stores open at least a year, fell for the fourth quarter in a row, slammed by a drop in its grocery business and aggressive price cuts during a tough holiday shopping season.

The smaller stores, typically one quarter the size of Wal-Mart's supercenters, allow the retailer to reach new customers, particularly in urban areas. They also appeal to shoppers who want to pick up groceries and other staples mid-week without making a trip to an enormous supercenter.

"The smaller format is a way to address the problems at grocery, but it's going to take multiple years for it to have a positive impact on overall results," said Edward Jones analyst Brian Yarbrough.

Comparable sales at the smaller stores rose 5 percent last quarter, compared to an overall 0.4 percent drop in the United States.

Wal-Mart now plans to open between 270 and 300 small stores this fiscal year, in addition to the 346 currently in operation, and is spending an extra $600 million to do so. It had planned to open 120 to 150 new small stores this year. Wal-Mart operates 4,000 super-centers.   Continued...

The Walmart logo is pictured at its store in the Porter Ranch section of Los Angeles November 26, 2013. REUTERS/Kevork Djansezian