Discount retail giants Wal-Mart
Wal-Mart’s net income increased 10% to $3.3 billion, or $0.88 per share. Revenue increased 6% to $99.1 billion. So far, so good -- until you get to Wal-Mart’s sagging same-store sales. U.S. comps decreased 1.1%, (down 0.5% when you account for fuel). As Wal-Mart’s CEO Mike Duke noted, “Our customers, particularly in the United States, are still concerned about their personal finances and unemployment, as well as higher fuel prices.”
On the other hand, Target hit the mark with its first-quarter earnings. Net income increased 28.6% to $671 million, or $0.90 per share. Revenue increased 5.5%, to $15.2 billion. Target’s same-store sales were solidly positive, increasing 2.8%.
The divergence in same-store sales trends casts doubt on the possibility of a sustainable consumer comeback. If American shoppers felt an urge to splurge in the early spring, those who had mercilessly pinched pennies at Wal-Mart for a long time might decide to return to higher-end discounter Target for some of its fun, slightly pricier, and more discretionary merchandise. But Wal-Mart’s previous quarterly results were a bit lackluster, too.
Increasing signs suggest that in some corners of the economy, folks have reopened their wallets to indulge in a few luxuries. Coach
Meanwhile, our economic troubles haven't gone anywhere. In its conference call, Wal-Mart management downplayed the idea that its newer customers are trading up, noting that its traditional customers are living “paycheck to paycheck” now more than ever.
In this light, I’d avoid the far weaker Sears Holdings
Sound off on the safety of discount retail stocks -- or the health of the American consumer -- in the comments box below.
Wal-Mart and Costco are Motley Fool Inside Value choices. Coach, Costco, and Starbucks are Stock Advisor selections. The Fool owns shares of Costco. Try any of our Foolish newsletters free for 30 days.