A Wal-Mart trailer is backed into a loading dock at the company’s regional distribution center in Hurricane, Utah. George Frey/Bloomberg News
Wal-Mart Stores Inc, the world's biggest retailer, may report its smallest profit increase in five quarters after Chief Executive Officer H. Lee Scott lowered prices to lure shoppers squeezed by rising gasoline costs and mortgage payments.
Results at the discounter, which accounts for almost a tenth of spending at US retailers, may add to signs of a slowing US economy and a disappointing holiday season for merchants.
The National Retail Federation projected in September a 4 percent sales gain for November and December, the slowest in five years, and J.C. Penney Co and Target Corp cut sales and earnings forecasts last month.
"They're going to be under pressure with everyone else fighting for that dollar," said Steven Baumgarten, an analyst at PNC Wealth Management in Philadelphia, with $77 billion in assets, including shares of Bentonville, Arkansas-based Wal-Mart.
Wal-Mart will probably say today that third-quarter net income rose 2.5 percent to $2.71 billion, or 67 cents a share in the three months through October 31. Revenue probably rose 9.9 percent to $91.8 billion, the average estimate of 16 analysts in a Bloomberg survey.
Wal-Mart discounted more holiday items this year and lowered prices two weeks earlier than last year, starting toy markdowns at the beginning of October.
The retailer took $10 off the price of a Fisher Price Smart Cycle, selling it for $89.88, and is offering two cans of Progresso soup for $3.
Scott, who has overseen five years of stock declines since he became CEO in 2000, is trying to revive revenue after sales at stores open more than 12 months increased by 1.4 percent this year through November 2, the slowest pace on record.
Rising costs
Higher food and gasoline costs together with declining home values have taken their toll on retailers, with seven out of 10 reporting October sales below analysts' estimates last week.
The warmest October ever in much of the Northeast hurt sales of fleece clothing, sweaters and jackets.
Wal-Mart last year reported a 2.1 percent gain in same-store sales, the lowest since the company began reporting the data 27 years ago.
For the four weeks through November 2, Wal-Mart reported a same-store sales gain of 0.4 percent, near the bottom of its forecast range of a gain of as much as 2 percent and less than analysts' estimates. Same-store sales are considered a key gauge of retail performance because they measure the health of established locations.
Spokeswoman Mona Williams said Scott wasn't available to comment.
Wal-Mart has seen its lower-income customers pull back as they cope with rising defaults and foreclosures on subprime mortgages.
Late payments
Delinquencies in the three months through June rose to 14.82 percent of all subprime mortgages, up from 13.33 percent during the final three months of last year.
A gallon of milk sold for an average of $3.83 last month, 21 percent higher than the previous year, according to the Agriculture Department. A gallon of gasoline in the last week of October cost an average of $2.90, 29 percent more than a year earlier.
Burt Flickinger, managing director of Strategic Resource Group in New York, blamed Wal-Mart's slowing growth on poor merchandising and allowing competitors to undercut it on price.
"Wal-Mart's problem is Wal-Mart," he said. "It's not the economy; it's not energy."
The retailer in September boosted its forecast by 4 cents a share to 66 cents to 69 cents after cutting labor and fuel expenses and posting higher back-to-school sales.
