Widlitz: Wal-Mart Announces Positive Comp Surprise and then the Lights Go Out in Arkansas

Walmart Home Office
Source: Walmart
Walmart Home Office

And then there was the moment of truth as Bill Simon, President & CEO of Walmart US took the stage and hit us with the news. Comps were positive for August and September.

Did I hear this correctly?

After nine quarters of negative same store sales had Wal-Mart finally turned the corner?

The universe was so surprised that the lights went out in Northwest Arkansas, literally.

Going into the Wal-Mart two day analyst event there was really only one subject on investors’ minds; same store sales. While we are all clear on the fact that the consumer continues to struggle (unemployment, consumer confidence, year over year higher gas prices, food inflation and on and on…) there are plenty of retailers that have been holding up just fine. In Target’s case the tide started to turn months ago as store remodels, the Pfresh roll-out and most recently exclusive winning product such as Missoni is paying off. Dollar stores have been in favor for a while now as it seemed obvious that the group was gaining share from Wal-Mart. And certainly noone can complain about Costco’s consistent double digit comps over the past many months.

So where has the 800 pound gorilla been in all this? There are plenty of places to point. First, the lower income consumer has been hit hardest as the valley between the haves and have nots seems deeper than ever. As far as the dollar stores go I do not doubt that there has been a share shift. After all, Wal-Mart lost its way for a while and fell out of favor in terms of everyday low prices (EDLP). And guess what? The consumer caught on and looked for value elsewhere. In addition, Wal-Mart eliminated plenty of product choices from their shelves.

Higher prices and lower selection have not gone unnoticed.

The good news for Wal-Mart is the management team is not sitting idle and just blaming the environment. Rather they are righting their wrong turn. EDLP is back. Certainly it may take sometime for the customer to realize value has returned, but baskets seem to be increasing. In other words it may take longer for the lost customer to return, but the ones who stayed are increasing their spend. Just as important Wal-Mart is adding back 10,000 SKUs to the mix which is breathing life back into several categories.

The markedly improved assortment was pretty clear as WMT herded us around to several format stores and gave us access to just about every category VP and SVP imaginable. I never have big expectations for analyst tours but I was presently surprised to actually experience in the store what the numbers portray. As I toured around WMT’s Supercenter in Fayetteville the SVP of Hardlines pointed out some interesting changes. Fishing, Hunting, tires and to a lesser extent golf have gone from run of the mill assortment to a true rival to specialty players. Hunting has even gone after the long ignored women’s category with camouflage jackets laced with pink highlights. WMT revealed today that hunting comps are running +16%, fishing +9% and tires +7%.

Other categories that have undergone increased SKU makeover include grocery, consumables, dairy and deli. Watch out dollar stores WMT is looking to reclaim market share. Next phase is to attack apparel, home and Consumer Electronics.

There were three investor concerns going into today’s meeting that has kept WMT from performing. Comps…check. Reduction in cap ex…check. Now we need to see the third piece of the puzzle (International) come together. With $2B in price investments coming over the next two years offset by cost cutting I would say WMT is off to a good start. And definitely should increase the fear factor from the competition. Only time will tell if WMT is truly back in the saddle.

Stacey Widlitz is the President of SW Retail Advisors Inc. She has worked at UBS, SG Cowen, Fulcrum Partners and in 2005 was one of three analysts to launch the Research Department at Pali Capital, where she covered Retail and Home Video for 5 years.