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Wal-Mart Stores on Thursday forecast a disappointing profit for the holiday season after reporting its third straight quarterly decline in U.S. comparable sales because of fewer shopper visits.
The company said comparable sales at its U.S. stores, its biggest unit, fell 0.3 percent in the third quarter ended on Oct. 31, in part because of price reductions on televisions and sluggish sales of toys and packaged foods.
Analysts had expected flat U.S. comparable sales, which include those online and at stores open at least a year.
Business was also slower than expected at Wal-Mart's Sam's Club chain and in key markets like Canada and Mexico, but the company's e-commerce operation and small-format stores performed well.
After the earnings announcement, the company's shares were flat. (Click here to get the latest quote for Wal-Mart stock.)
Even though business improved as the quarter progressed, Wal-Mart expects U.S. comparable sales to be flat during the current holiday quarter, which executives said would be "as competitive" as any in memory.
Wal-Mart caters to lower-income customers, who have been reluctant to spend this year because of higher payroll taxes and slow job growth. The retailer and analysts do not expect that caution to abate this holiday period.
"That low-end consumer is just not willing to step out and buy those discretionary items," said Edward Jones analyst Brian Yarbrough.
Kohl's, a mid-tier department store chain that serves a price-conscious clientele, said its comparable sales fell 1.6 percent last quarter, while Dillard's also reported disappointing sales.
Some encouraging signs
To kick-start U.S. sales, Wal-Mart in recent years has emphasized the expansion of its smaller-format stores and those that are closer to cities.
Last month, the company said that in its next fiscal year, it would for the first time open more of those stores than the large supercenters for which it is best known.
Wal-Mart said comparable sales at its fleet of smaller-format U.S. stores rose 3.4 percent last quarter. It currently has 300 such stores and plans to have 400 by year-end.
Other positive signs for the company include a 40 percent increase in online sales, which Wal-Mart expects to reach $10 billion this year, or about 2.1 percent of its total.
Apparel and home goods were among the company's best performers last quarter.
To compete against retailers such as Amazon.com Inc and Target Corp, Wal-Mart began its holiday sales earlier than last year and is advertising more heavily.
Walmart U.S. Chief Executive Officer Bill Simon told reporters that the company would also "invest" in prices, its term for cutting them.
But some analysts were not convinced that would be enough.
"Lowering prices no longer drives an offsetting increase in traffic which has been the lifeblood of Wal-Mart,'' said Ken Murphy, a senior vice president at Standard Life Investments.
Wal-Mart's overall revenue increased 1.6 percent to $115.69 billion, while Wall Street was expecting $116.8 billion, according to Thomson Reuters I/B/E/S.
International sales rose 4.1 percent to $34.4 billion, excluding any currency impact. Comparable sales fell in Mexico and Canada, but rose in Britain.
In one encouraging sign for Walmart International, its operating income rose 9.2 percent despite tepid sales as it made progress in cutting costs.
Same-store sales rose 1.1 percent at the company's Sam's Club chain, which has long lagged rival Costco Wholesale. Analysts were expecting a gain of 1.3 percent.
Third-quarter profit from continuing operations rose 2.8 percent to $3.73 billion, or $1.14 per share. That was 1 cent higher than analysts were expecting.
The company forecast a profit of $1.60 to $1.70 per share for the current quarter, while Wall Street analysts were expecting $1.69, according to Thomson Reuters I/B/E/S.
Wal-Mart lowered its full-year forecast and now expects earnings of $5.11 to $5.21 per share, compared with an earlier outlook of $5.10 to $5.30.
The company said it still expected sales to rise 3 percent to 5 percent in fiscal 2015, which begins in February.