Wal-Mart Stores Inc. eked out a rare gain in an important sales measurement during the third quarter as it reported profits that beat Wall Street expectations Thursday.
But the world's largest retailer issued a fourth-quarter profit outlook that missed Wall Street expectations because of expected fierce holiday discounting. The quarter also marked two full years of traffic declines at U.S. Wal-Mart stores.
Macy's, J.C. Penney and Kohl's all reported results this week that show middle-income shoppers remain cautious heading into the holiday shopping season.
Wal-Mart itself is a barometer of consumer spending, and its challenges reflect the struggles of its low-income shoppers, who are being squeezed by stagnant wages and reduced government food stamps. But Wal-Mart sees potential help: Lower gas prices that could put more money into shoppers' pockets.
To win its share of its holiday dollars, Wal-Mart announced an aggressive holiday plan that includes free shipping on the top 100 items and price cuts on 20,000 items. Starting Friday, Wal-Mart will start to match online prices such as Amazon's in its stores. Managers of half of its stores were already doing that, but now it's become an official policy.
"Being the price leader is an ongoing priority for us and a commitment to our business," said Doug McMillon, who took over as CEO in February. "And with every year, that is even more important during the holiday season."
He added that while he's encouraged by the sales increase at its Wal-Mart stores, he's still not satisfied with the performance.
"We need to continue to improve the customer experience, both in our stores and online, to deliver stronger sales growth and strength our bottom line performance," McMillon said in a transcript of a prerecorded call to investors.
Wal-Mart reported earnings of $3.71 billion, or $1.15 per share, for the three months that ended Oct. 31.
The company, which is based in Bentonville, Arkansas, posted revenue of $119 billion in the period, beating Wall Street forecasts. Analysts expected $118.35 billion, according to Zacks.
Wal-Mart's U.S. discount division posted a 0.5 percent increase in revenue at stores open at least a year. That was the first increase in seven quarters.
Its smaller Neighborhood Markets, which cater to shoppers looking for more convenience and offer groceries, fresh produce and beauty items, had a 5.5 percent increase in revenue at stores open at least a year.
During a call with reporters on Thursday, Wal-Mart Chief Financial Officer Charles Holley said Wal-Mart is already seeing some benefit from lower gas prices, which are translating into improved customer traffic in stores. "We all know it can help the average consumer," he said.
The average gasoline price in the U.S. has fallen for 48 straight days, according to AAA. Drivers are now paying $2.92 per gallon on average.
Ken Perkins, president of RetailMetrics LLC, believes it will take until December for Wal-Mart and other stores to really benefit from the money saved.
Wal-Mart said that it expects fourth-quarter earnings per share to range between $1.46 and $1.56, which includes the negative impact of closing underperforming stores in Japan. Analysts had expected $1.57 per share.
The company expects full-year earnings to be $4.92 to $5.02 per share. Analysts had expected $4.99, according to FactSet.