Wal-Mart’s Profits Take a Hit Due to Its Low Pricing Strategy

Wal-Mart (NYSE:WMT) reported mixed Q3 results last week witnessing an 8% increase in its net revenues over the same quarter last year. This was due to an increase of 1.3% and 5.7% in comparable sales in the U.S. and Sam’s Club segment respectively. However, its profits witnessed a decline of 3% over the same period and missed analyst estimates. According to Bill Simon, Wal-Mart’s US chief, Wal-Mart did not pass higher prices charged by suppliers to customers suffering persistent unemployment. Consequently, the gross profit margin was hurt and it may continue to narrow in the fourth quarter. ^[1] Wal-Mart competes with other big-name retailers like Target (NYSE:TGT), Costco (NASDAQ:COST), Amazon (NASDAQ:AMZN) and Best Buy (NYSE:BBY).

See our complete analysis for WMT stock here

Wal-Mart International Key Growth Driver

Walmart International segment has been a key driver for Wal-Mart over the past couple of years. Wal-Mart’s International segment reported a 20% increase in net revenues this quarter. In the developed economies, its growth has stagnated. The ongoing euro-crisis is adding volatility to the present economic environment.

Wal-Mart looks keen to expand its geographical footprint. In June 2011, it acquired Massmart Holdings to expand its presence in Africa. Massmart runs nine wholesale and retail chains with approximately 288 stores in 14 African countries. (See our previous post: Wal-Mart’s Outlook in Africa) It is also looking at various channels to expand in India in a major way.

See our recent note Wal-Mart Updates: International Biz is Clicking, New Initiatives Encouraging that discusses Wal-Mart’s international strategy.

Understand How a Company’s Products Impact its Stock Price at Trefis

1. Wal-Mart Q3 Profit Below Estimates, Global Times [↩]