Markets

Is it yet the winter of Walmart's discontent?

Walmart's (WMT) earnings are in, and on the face of it, the largest retailer in the world should be in sunny spirits. The Bentonville, Arkansas-based firm reported diluted earnings of $0.98 per share from its continuing operations, up 11 cents from last year's figure and above its guidance level.

So far, so good. However, the chain's comparable store sales in the United States declined 1.1 percent in the 13 weeks ending on April 29, a shortfall that was partially made up for by a 4.2 percent increase for Sam's Club comp sales.

The company's shares were down about 1 percent on Tuesday afternoon

"We recognize we still have work to do and comp sales growth remains the greatest priority for me and the entire Walmart U.S. team," said president and chief executive officer Mike Duke in Walmart's earnings release. "The good news is that the plan Bill Simon and his team are executing is gaining traction. We're focused on delivering every day low price and a wide assortment."

The big growth for Walmart must now happen overseas, in emerging markets like China, Mexico and Chile.

A couple of major macro-economic trends may hamper the behemoth's growth in the United States, though. For one thing, its Supercenters have saturated much of the available market. More importantly, Walmart's strength always came from its low costs and efficient supply chain. The rising tide of commodity prices threatens to disrupt both the manufacturing and transport of its low-cost goods.

If Walmart can no longer afford to undercut competitors with ultra-cheap cotton T-shirts, hamburger meat and televisions, it may see further sales declines. Low-margin goods are more affected by materials costs than those higher on the chain, so more expensive goods may see a smaller jump in price.

Though it draws customers from every walk of life, Walmart also relies on working-class Americans for a huge portion of its base. The recession hit the working class harder than it did the educated college laborer, and the recession has been seen more in stocks and capital assets than in housing activity or employment.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.