Wal-Mart's worst performance in 10 years

Wal-Mart's U.S. Same-Store Sales Fell 0.1 Percent (Update1)

By Lauren Coleman-Lochner

Nov. 30 (Bloomberg) -- Wal-Mart Stores Inc., the world's largest retailer, said U.S. same-store sales fell 0.1 percent in November, the worst performance in more than 10 years, as holiday discounts on toys and electronics failed to lure customers.

December sales at stores open at least a year will rise between 0 to 1 percent as the company continues to struggle with its home goods and clothing lines, the Bentonville, Arkansas- based company said today in a statement. Customer visits fell while the average sale increased, the company said.

Shoppers are heading to Target Corp. and moderately priced department stores such as Kohl's Corp. that offer exclusive clothing and merchandise, said Patricia Edwards, a Seattle-based money manager at Wentworth, Hauser & Violich. Companies are also matching Wal-Mart's lower prices.

``They don't have a cohesive strategy, they are flailing around,'' said Edwards, who helps oversee $8.2 billion in assets including Wal-Mart shares. ``Price is not the main thing to compete on right now, it's product differentiation.''

The company's home and clothing lines are ``challenging'' and will continue to be so through the fourth quarter, Eduardo Castro-Wright, U.S. stores chief, said in the statement.

November's performance, which matched a preliminary estimate Wal-Mart provided Nov. 25, is the worst since April l996, when same-store sales fell 0.6 percent after a shift in the timing of Easter. In November 2005, Wal-Mart's U.S. same- store sales increased 4.3 percent after shoppers restocked after hurricanes Katrina and Rita.

Share Performance

Shares of Wal-Mart, which has more than 3,900 U.S. stores, rose 18 cents to $46.89 yesterday in New York Stock Exchange composite trading. They have risen 0.2 percent this year.

November marks the second month in a row the retailer has reported sales growth of less than 1 percent. Since last month, Wal-Mart cut prices on toys, electronics, groceries and appliances and extended its $4 generic drug program to all U.S. pharmacies.

Neil Currie, an analyst at UBS Securities LLC in New York, was ``somewhat surprised'' by the company's weak sales this month after it cut prices aggressively, he wrote in a Nov. 27 research note. ``Perhaps the multitude of rollbacks at Wal-Mart did not have the desired, broad shopping effect.'' He rates shares ``neutral 2'' and doesn't own any.

Wal-Mart's results probably pulled the expected November gain at U.S. retailers down to 2.5 percent, the International Council of Shopping Centers and UBS said Nov. 28.

Earlier Sales

In October, Wal-Mart said disappointing clothing sales and renovations hurt sales, reporting a 0.5 percent gain after initially forecasting an increase of 2 percent to 4 percent.

Wal-Mart's ``upscale move may be alienating its core customer,'' Charles Grom, an analyst at J.P. Morgan Securities Inc. wrote in a Nov. 28 report. Grom, based in New York, rates shares ``neutral'' and doesn't own any.

The company is modernizing more than half of its U.S. Wal- Mart stores. Wal-Mart finished the first round of 1,200 stores this month and will begin work on the remaining 600 in February.

Metro 7, a clothing line it introduced in October 2005, initially sold well, then faltered when the company added it to more stores. Wal-Mart is now removing the collection from up to 700 stores, leaving it in 800 to 900, Chief Financial Officer Tom Schoewe said in an interview earlier this month.

Electronics' Success

Wal-Mart has had more success selling electronics, Castro- Wright said today, helped by ``solid performances'' in HDTVs, MP3 players and computers.

In addition to post-Thanksgiving specials, Wal-Mart earlier this month cut prices on almost 100 electronics items, discounting a 42-inch Panasonic plasma television by $500, to $1,294.

Target Corp., the second-largest U.S. discounter, reiterated Nov. 16 that it expected a November comparable-store sales gain of 4 percent to 7 percent. Its same-store sales have outpaced Wal-Mart's in 12 of the 15 previous quarters.

Wal-Mart has traditionally benefited as energy prices fall, since its lower-income shoppers are more vulnerable. Edwards estimates average household income of about $38,000 for Wal-Mart shoppers, compared with $60,000 at Target.

Gasoline prices have declined 25 percent since July, averaging $2.25 a gallon for the week ended Nov. 27, according to the Energy Department.