Friday, October 26, 2012

Wal-Mart Sales Gains May Mask Problems : Deutsche Bank

Deutsche Bank analyst Charles Grom released a note today calling into question the sustainability of recent same-store sales gains by Wal-Mart (WMT).

“Wal-Mart�s U.S. comp of 1.3% in 3Q11 was respectable, but we believe higher food inflation and increased SKU count across the store drove the entire comp, masking traffic softness,” Grom writes.

Grom also took a look at Wal-Mart’s recent advertising, and noticed a troubling trend indicating the chain has gotten even more promotional in its strategy: “Figures shows that the number of inserts (per market) during October rose from 1.2x to 2.0x on a weekly basis while page count increased to 16 per insert compared to 12 a year ago.”

While same-store sales increase should continue through the fourth quarter, this could spell trouble for margins going forward. “The bigger question on our minds is what will be the impact to both inventory turns and gross profit margins from these initiatives going forward as we observed in the company�s 3Q results.”

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