Wal-Mart (WMT) Working to Improve Grocery Offerings - Analyst Blog

The largest global retailer Wal-Mart Stores Inc. ( WMT ) has been facing severe challenges since the last few quarters and showing signs of acute weakness. A challenging retail environment in the U.S. as well as in most international markets due to cautious consumer spending has been hurting the company's top line. Middle-class consumers are still struggling to cope with stagnant wages and reduced food stamp benefits. Declining headcount in the stores is also hurting the company's operations.

Amid the weak scenario, the company is making efforts to understand the evolving needs of its customers to re-gain their confidence. Wal-Mart is now focused on improving its grocery offerings, per the reports, as customers find it difficult to get quality fresh food and meat products at affordable prices.

A New York Times report started that Wal-Mart issued a memo last month, instructing store managers to focus on providing fresh dairy and meat products in all its departments across the country. In addition, the stores were instructed to rotate dairy products and eggs, to dispose of expired products and maintaining fresh products always.

The move came when some of the customers complained regarding stale food products, according to newspaper reports. In addition, some of the news reporters observed dented and dirty milk cartons and a poorly stocked produce section in one of the Wal-Mart stores.

Later, reports from Bloomberg stated that Wal-Mart has been struggling due to lack of labor in the stores. The company does not have enough workers to clear the inventory out of the back rooms and display on the sales floor.

The retailer has been vigorously working on expanding its grocery offerings in order to revive its sluggish sales and regain consumers' confidence. In April, Wal-Mart teamed up with the Wild Oats brand to offer organic food products at the same price as conventional foods and at least 25% cheaper than other organic brands, which will be available only at Wal-Mart stores. (Read: Walmart to Boost Organic Food Sales ). We believe this tie up with Wild Oats brand will surely help the company attract consumers owing to rising demand for organic food products.

We note that the company's U.S. comparable store sales have been sluggish over the last six quarters as a result of weak spending by lower- and middle-income segment consumers. Last month, the company even slashed its fiscal 2015 sales outlook amid a tough economy. Wal-Mart now expects annual sales to grow in the range of 2% to 3% in fiscal 2015, down from its earlier guidance.

Moreover, the retailer has shifted its investment plans and will lower investment in larger stores, while investing more in e-commerce initiatives in the face of stagnant same-store sales and declining store traffic in the U.S. (Read: Wal-Mart Cuts Sales View, Investing More in E-Commerce ).

Though we are positive on the company's efforts on improving grocery offerings, the current scenario is alarming for its investors. Moreover, the lowered outlook for fiscal 2015 sales might raise concerns in view of the upcoming holiday season, which is crucial for retailers like Wal-Mart.

Wal-Mart is scheduled to report its third quarter fiscal 2015 today before the market opens. It holds a Zacks Rank #3 (Hold) and has an Earnings ESP of -0.89%, which shows that Wal-Mart is not likely to beat earnings this quarter.(Read: Will Wal-Mart Miss Q3 Earnings on Higher Costs? ).

Better-ranked retailers include Safeway, Inc. ( SWY ), Citi Trends, Inc. ( CTRN ), L Brands, Inc. ( LB ). While Safeway sports a Zacks Rank #1 (Strong Buy), Citi Trends and L Brands hold a Zacks Rank #2 (Buy).

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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.

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