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Wal-Mart U.S. stores start to show a rebound

Re-useable Walmart bags are seen in a newly opened Walmart Neighborhood Market in Chicago
Re-useable Walmart bags are seen in a newly opened Walmart Neighborhood Market in Chicago

By Jessica Wohl

(Reuters) - Wal-Mart Stores Inc is seeing sustained improvement at its U.S. discount chain after a sales slump that lasted more than two years.

Sales at Walmart stores open at least a year have risen for three months straight, placing the world's largest retailer in a sweet spot heading into the important holiday season.

Same-store sales account for about 98 percent of Walmart's sales in the United States, so ending the slump at existing stores is critical for the world's largest retailer.

The chain is also a strong indicator of U.S. economic momentum. Walmart discount stores account for nearly 11 percent of U.S. retail sales.

Walmart U.S. has posted nine consecutive quarters of same-store sales declines. While such sales rose in July, the last month of the fiscal second quarter, same-store sales fell 0.9 percent in the quarter.

Walmart's U.S. discount chain, by far the company's largest business, is resuming holiday layaways after a five-year hiatus and heavily increasing its advertising spending as it tries to win back lower-income shoppers.

It has brought thousands of items back to stores, propelling sales of goods from hunting gear to underwear, and plans to invest $2 billion over the next two years to keep its prices lower than competitors'.

"Walmart's going to be aggressive in price and that just bodes well for the consumer," said ITG Investment Research analyst John Tomlinson, who is attending the company's annual meeting for the investment community in Rogers, Arkansas. "This is going to be a very competitive retail landscape this holiday season. They're committed to winning."

Walmart also plans to open up to 385 U.S. stores over the next two years, most of them supercenters, as it tries to retain and expand its dominance in retail.

Wal-Mart shares were up 1.2 percent at $55.36 in the afternoon after rising as high as $56.38 following comments about the U.S. business earlier in the day.

SAME-STORE STRENGTH

Walmart U.S. same-store sales continued to rise in August and September, Walmart U.S. Chief Executive Bill Simon said at the meeting, which is also being broadcast over the Internet. Traffic in stores has increased, led by traffic in the food department, he added.

For the third quarter ending this month, Wal-Mart previously said U.S. same-store sales should be down 1 percent to up 1 percent. It did not update that forecast on Wednesday.

Meanwhile, Walmart International's leaders, who run thousands of stores from China to South Africa, said that their returns will improve. International return on investment should rise 3 to 4 percentage points between fiscal 2012 and 2017.

Wal-Mart is not expecting a material financial impact from the pork mislabeling issue it is dealing with in part of China, Walmart Asia CEO Scott Price said.

MORE AND MORE WALMART

Walmart opened about 153 U.S. stores and spent about $7.3 billion on capital expenditures in fiscal 2011. Now, the company is preparing to open many more stores at a lower cost.

Walmart plans to open 142 to 150 U.S. stores this fiscal year, which ends in January. It plans to spend $6.5 billion to $7 billion on U.S. capital expenditures this fiscal year.

Walmart has five Walmart Express stores, which it began testing in June. It plans to have 11 by the end of the fiscal year, said Karen Roberts, president of Walmart Realty.

In fiscal 2013, Walmart plans to open 210 to 235 U.S. Walmart stores and devote $6 billion to $6.5 billion to U.S. capital expenditures.

Walmart U.S. plans to open 130 to 135 supercenters and 80 to 100 small-to-medium stores next year, Roberts said.

Supercenters remain Walmart's primary growth vehicle in the United States, though new supercenters are smaller than in the past at roughly 90,000 to 120,000 square feet. Before, supercenters averaged about 185,000 square feet.

Most of the small-to-medium stores built in 2013 will be Neighborhood Market stores, which are Walmart's version of a grocery store. The financial returns of Neighborhood Market stores are approaching those of supercenters, Walmart says.

The money for the $2 billion price reduction plan will come from changes such as reducing new store and remodeling costs as well as improving productivity and efficiency in areas such as stores, distribution, transportation and marketing.

(Reporting by Jessica Wohl in Chicago; Editing by Phil Berlowitz, Dave Zimmerman)

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