Although most retailers waited for last year’s holiday shopping season for a long time, the quarter results were not as good as they expected. Impacted by price discounts, Wal-Mart’s holiday quarter was lower than estimated.
After Black Friday, the Christmas shopping spree and News Year frenzy, most retailers were circulating numbers that were, to say the least, impressive. Everybody was happy with their income, but analysts warned that trying to keep customers happy meant reducing prices considerably. As a result, a lot of companies missed out on bigger profits.
That’s exactly the case of Wal-Mart, which during the holiday shopping spree threw discount after discount, both in the attempt to get more customers and gain edge in the cut throat competition of the market.
According to the company’s earnings report, Wal-Mart’s operating income growth was smaller than sales, while gross profit margin dropped 13 percentage points. Sales in stores recorded a 1.5 percent increase, marking the second quarter of decline. The report showed that the company’s U.S. business recorded a 2.1 percent growth in revenue at stores opened at least a year.
Meanwhile, net sales increased by 5.9 percent to $122.28 billion. It was only a little bit under what analysts had estimated net sales of $123.9 billion. Bottom line, net income was $5.16 billion.
Chief equities analyst at NBG Productions, Brian Sozzi, explained Thomson Reuters that “the market wanted Wal-Mart to begin to transition to a land of stronger profits per sales in the fourth quarter and then project that trend becoming more self-sustaining”. As a result, “on both scores, there was disappointment to be found”.
Sozzi also pointed out that as hard as Wal-Mart is working to improve its sales it does it “at the expense of profits on each sale. Just imagine if they weren’t doing this”.
But in a context where the consumer remains very strict with his spending budget, companies that want to thrive and survive must adapt to the situation. As Mike Duke, president and chief executive of Wal-Mart Stores Inc., puts it “core customers remain cautious about their finances”. Thus, companies will continue to drop prices at the expense of profits just to continue to have clients.