Grocery, Pharmacy Bright Spots in Dim Quarter for Wal-Mart

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Grocery, Pharmacy Bright Spots in Dim Quarter for Wal-Mart

BENTONVILLE, Ark. - In a conference call here yesterday, Wal-Mart's top executives lamented a "challenging" second quarter that saw missed objectives in overall performance, but also bright spots in the grocery and pharmacy segments where the retailer most directly rivals grocers.

Wal-Mart Stores Inc. reported a 49 percent increase in second-quarter profits, but still has cut its profit outlook, blaming weak economic conditions that are hitting its core shoppers especially hard, said the executives.

As Progress Grocer reported yesterday, the retailer reported net income of $3.10 billion, or 76 cents per share, for the three months ended July 31, compared to $2.08 billion, or 50 cents per share in the year-ago period.

"Our underlying operating performance was not what we expected of ourselves," noted a sober-sounding Lee Scott, Wal-Mart president and chief executive officer, during the call.

Chain executives said that in the Wal-Mart U.S. segment, the company has made performance improvements in some areas, most notably grocery, pharmacy and entertainment. But merchandising overall is not where it needs to be, and at the same time, its consumer base is under pressure economically.

In response, the retailer has boosted rollbacks by 20 percent in our stores.

Eduardo Castro-Wright, the c.e.o. of the company U.S. Stores division, said division comps of 1.2 percent in the quarter were driven by sales in grocery, pharmacy, and entertainment. "But we are not happy with this quarters' results," he added.

Castro-Wright did say that the company's latest strategic reinforcement of pricing leadership "is paying off nicely," with market share gains in grocery, for example. Supercenter food sales were up 14 percent in the second quarter, and food comps were in the mid single digits, he said. "The pharmacy area continues to be above plan in sales, with strength in all geographic areas," Castro-Wright added.

However, its price leadership focus and markdown activity has pressured the division's gross margins. "U.S. gross margin as a percentage of sales is down by 50 basis points," said Castro-Wright. The focus on grocery and entertainment is putting more pressure on gross profit, he noted. Also, shrink is higher than last year, which has prompted Wal-Mart to put a program in place to combat it.

The retailer's execs said the company has revised its outlook downward for the full year, reflecting "our need to improve underlying operating performance, coupled with the macro economic pressure we feel in many of our major markets."