Wal-Mart’s Worst Xmas in Five Years

This can’t be good:

WSJ: "Wal-Mart Stores Inc. expects December same-store sales at its U.S. locations to show growth of 2.2%, at the low end of its previous guidance of 2%-4%, despite aggressive discounts and marketing this holiday season.

In its weekly prerecorded sales update Saturday, the world’s largest retailer said general-merchandise sales were stronger than food sales for the week ended Friday. The stronger general-merchandise sales — a reversal from previous weeks — likely indicates Wal-Mart saw a strong flow of gift-card redemptions in the week after Christmas.

Even so, the 2.2% gain in same-store sales, that is, sales at stores open at least a year, is Wal-Mart’s lowest December gain in five years." (emphasis added)

The wild "card" (pun inteded) is Gift Cards: They don’t get recorded as revenue when sold — only when they are redeemed. "Wal-Mart gift-card sales beat expectations this season, is counting on a big sales boost in January from gift-card redemptions."

Still, its hard to imagine that enough Wal-Mart GIft Cards were sold to make up up this shortfall.

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UPDATE: January 2, 2006 10:13pm

This Wal-Mart disappointment is a surprise to me. Even though I was looking for only 3-4% Holiday sales increases (across all retailers), I thought Wal-Mart was going to do okay. And, I was on the low end of Wall Street’s estimates.

The Wal-Mart surprise sent me back to look at two reent articles I bookmarked on Holiday Retail ’05, both from December 27.

How are these two for conflicting data?  :

WSJ:  Retail Spending Rose 8.7% in Holiday ’05, MasterCard Finds

NYT:  The Day After Christmas, Shoppers Take a Holiday

The only good news — from an analytical perspective, anyway — is that this is another bearish data point confirming the bigger picture we’ve been painting.

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Sources:
Wal-Mart Sees December Sales At Low End of Its Forecast
KRIS HUDSON and GEORGE STAHL
THE WALL STREET JOURNAL, January 2, 2006 5:22 p.m.
http://online.wsj.com/article/SB113618039958235711.html

Wal-Mart’s Holiday Growth May Be at Low End of Forecast
MICHAEL BARBARO
NYT, January 2, 2006
http://www.nytimes.com/2006/01/02/business/02walmart.html

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What's been said:

Discussions found on the web:
  1. nate commented on Jan 2

    I heard or read a stat somewhere: many gift cards do not get redeemed.

  2. Barry Ritholtz commented on Jan 2

    its called breakage, and as much as a third are not redeemed.

  3. nate commented on Jan 2

    one more: it will be interesting to look at something like an Urban Outfitters in addition to WMT.

    Slow video game sales in Nov was a possible ominous sign.

  4. Neil commented on Jan 2

    This shortfall can only inure to the detriment of the employees, who likely will lose access to the Wal-Mart restrooms now ;-)

  5. Patrick Grote commented on Jan 2

    Quick question … how can a retail establishment grow sales every quarter? I know through expansion, but same store sales increasing quarter over quarter?

    Isn’t their a limit to the size of the pie?

  6. Michael C. commented on Jan 2

    How can a retail establishment grow sales every quarter?

    Two reasons flat out come to mind that have nothing to do with any company – inflation and population growth.

    …?

  7. Larry Nusbaum, Scottsdale commented on Jan 2

    The wild “card” (pun inteded) is Gift Cards: They don’t get recorded as revenue when sold — only when they are redeemed. “Wal-Mart gift-card sales beat expectations this season, is counting on a big sales boost in January from gift-card redemptions.”

    AND, THE REASON FOR THAT IS?

  8. fiat lux commented on Jan 3

    Gift cards are not really all that wild a card. Although Wal-Mart cannot officially recognize the revenue, that does not mean they don’t know how many cards have been sold and the dollar amount of those cards.

  9. nate commented on Jan 3

    one has to wonder about profit margin trends.

    were margins sacrificed to get reach the 2% number?

  10. stock junky commented on Jan 3

    This can’t be good for liquidator Overstock…can it?

    I can’t wait to see OSTK get pounded on Tuesday.

    Next stop, $17.

  11. mpersh commented on Jan 3

    as for the gift card, it is a trendy business now. There are many gift card reseller networks, gift card exchange/swap networks. Holding gift cards from different sources is not much different than holding stock shares from different companies, and many did consider it as “alternate” equity. I know most of the “gift card holders” got better than market return in 2005.

  12. Big Al commented on Jan 3

    If the Gift cards are spent during the post -Xmas sales the profit will not be as good.

  13. me commented on Jan 3

    From the WSJ today:

    Sanford C. Bernstein & Co. analyst Emme Kozloff, speaking of all retailers, said gift cards “will not materially impact December results and should not be used as an excuse for poor performance.”

  14. Michael C commented on Jan 3

    >>>”Wal-Mart gift-card sales beat expectations this season, is counting on a big sales boost in January from gift-card redemptions.” <<< I remember this same statement being made last year as well at many retailers. Gift cards were "all the rage" last year as well, so whats the difference?

  15. druce commented on Jan 3

    Maybe the reason for the sales plunge is everyone is shopping at Overstock.com :)

    Traffic graph

    (or more to the point, online shopping, not to mention gas prices, rising interest rates, etc.)

  16. Sale commented on Jan 3

    Wal-Mart cannot officially recognize the revenue, that can’t be right!

  17. stock junky commented on Jan 3

    someone jokingly said:

    Maybe the reason for the sales plunge is everyone is shopping at Overstock.com

    In your dreams. OSTK’s couldn’t even squeeze a profit during the holidays — red flag #1.

    The CEO is utterly insane. CEOs manage operations, not crusades — he’s the best raconteur I ever heard, I’ll give him that….Red flag #2.

    3 or 4 downgrades in less than 6 days. Piper. Lehman. WR Hambrecht (which has a very cozy relationship with Byrne’s father)….red flag #3

    shall I continue?

  18. Lord commented on Jan 3

    Last year, consumer spending amounted to 89% of GDP (Kellner, Marketwatch). Even if business spending increases this year, how can it possibly make up for decreases in consumer spending?

  19. cm commented on Jan 4

    Walmart’s numbers disappoointing can only mean one of two things:

    (1) Many people’s disposable incomes improved, and they don’t have to shop at Walmart anymore.

    (2) Many people’s disposable incomes deteriorated, so that even shopping at Walmart is out of the question now.

    Pick your poison!

  20. Jon H commented on Jan 5

    “its called breakage, and as much as a third are not redeemed.”

    So what happens to the money?

    If the store can’t count the money as revenue until the card is used, and the purchaser has already paid, then where does the money go?

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