Wal-Mart Struggles Despite Its Best Efforts

Wal-Mart (NYSE: WMT  ) has upped the ante this year, expanding operations around the globe, launching into the social-media realm, and conducting a whole host of test projects. Although these initiatives appear to be a step in the right direction, rising crude prices and cash-strapped consumers are helping to spoil the party.

A brief look at the numbers
Strength in Wal-Mart's overseas operations helped send quarterly revenues up 4.4%, to $104.2 billion. Net income rose 3%, to $3.4 billion, from the year-ago quarter. U.S. comparable sales, however, have proved to be a dampener, declining for an eighth straight quarter.

Lately, it seems many bread-and-butter Wal-Mart customers have gone in one of two directions. On one side, ultra-price-conscious consumers have turned to companies like Family Dollar (NYSE: FDO  ) and Aldi. On the other, they have turned to more upscale discount stores such as Costco (Nasdaq: COST  ) and Target (NYSE: TGT  ) .

To help stem these trends, Wal-Mart has shifted focus to re-establish the one-stop shopping experience. It is also working hard to stock items that it had previously stopped selling and also returned to its "Every Day Low Price" campaign. But will that be enough?

Rising oil prices have put a serious strain on the spending power of consumers, especially low-income consumers in the U.S. Gas prices have risen to $4 a gallon, causing shoppers to make fewer visits to the store. Wal-Mart is increasingly global in scale, but it can't shrug off the fact that U.S. operations still contribute 62% of the company's revenue.

The Web and social media
Wal-Mart has upped efforts to expand online initiatives. A couple of months ago, it launched its Pick Up Today program, which allows customers to preorder items online and pick them up later.

Following in the footsteps of grocers such as Safeway (NYSE: SWY  ) and SUPERVALU (NYSE: SVU  ) , Wal-Mart recently began testing an online grocery delivery system called Wal-Mart to Go, where daily household and food products are delivered to the customers' doorsteps. These efforts may help increase sales, especially to people most strapped for time. Along these same lines, Wal-Mart recently acquired social-media group Kosmix in a bid to take advantage of the growing world of social media and e-commerce.

International operations
The one positive I saw in the first quarter is Wal-Mart's international operations, which account for almost 26% of its revenues. That has shown indisputable signs of growth, with strong gains seen in its Mexican, Chilean, and Chinese operations. The company also continues to make huge investments in Brazil.

The Foolish bottom line
Rising oil prices and budget-conscious consumers are hitting the company hard. Time will tell whether Wal-Mart's investments will help correct some disturbing trends in the business.

Shubh Datta doesn't own any shares in the companies mentioned above. The Motley Fool owns shares of Costco, SUPERVALU, and Wal-Mart. Motley Fool newsletter services have recommended buying shares of Costco and Wal-Mart. Motley Fool newsletter services have recommended buying calls in SUPERVALU. Motley Fool newsletter services have recommended creating a diagonal call position in Wal-Mart. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


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  • Report this Comment On May 26, 2011, at 8:26 AM, Truthful12 wrote:

    To be honest Wal-Mart should vanish.

    Their products and merchandise are horrible. I bought a hose 4 times from them and finally gave up traveled 30 minutes to Lowes and got a hose that did not break.

    There is a point to lowering costs, but when it comes at the expense of inferior overseas products save your money and spend a bit more somewhere else. In the long run it may cost a bit more but it will last a lot longer.

  • Report this Comment On May 27, 2011, at 6:14 PM, 2L84U2 wrote:

    Remember back when Sam was alive, "WE BUY AMERICAN WHENEVER WE CAN SO YOU CAN TOO", it seems the last 20 years they don't care about quality, it has taken quite some time, but people are tired of running back and forth for a replacement or refund, I know I did, I haven't shopped there in about 5 years, and sometimes it's hard. They have put a lot of good producers of quality products out of business, making it hard to find some things even paying top dollar. Maybe it is time people start looking at things a little different, if you can run and buy a new one at Walmart every time it breaks, chances are you don't really need it. Save your money and invest in something manufactured with better quality, maybe get some jobs back in the US. I would invest in it, it is only your country at stake.

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