It's Home for the Holidays at Wal-Mart
November 28, 2005,
Bentonville, Ark. —
“We are optimistic about the holiday because of the momentum we are starting to see in our business. … Our results are already being driven by some of our key categories — electronics, toys, apparel and home,” said John Menzer, vice chairman, Wal-Mart Stores. “Our early read is that holiday sales in these categories will be strong.”
Menzer attributed the growth in part to the retailer's new marketing initiatives intended to speak to existing customers, as well as tap potential new ones.
“Wal-Mart is putting forth a truly robust, integrated marketing, merchandising and operations campaign,” he said. “We're connecting with our customers through a single message of 'Wal-Mart. Home for the Holidays.' This is a new marketing campaign that should resonate well with our loyal customer base but is also relevant to a broader customer base. It helps put Wal-Mart at top of mind as a destination for shopping.”
He added that this new message is consistent with in-store signage, TV and radio, monthly circulars, walmart.com and other online media properties.
While holiday and fourth quarter performance is already showing promise, Wal-Mart also reported some less encouraging results for the third quarter at Wal-Mart Stores.
Its operating income did not grow as fast as sales, and this occurred for three major reasons, Lee Scott Jr., president and CEO, outlined: Wal-Mart's portion of hurricane losses, adjustment of warranty liabilities in its specialty division, and increased freight charges due to higher fuel costs, net of the debit card gain.
Expenses related to the three hurricanes that struck during the period — Katrina, Rita and Wilma — cost the company about a penny per share, Scott said.
Thomas Schoewe, executive vice president and chief financial officer, elaborated on the freight cost issue and its impact on Wal-Mart. “In the last quarter, we said that moving freight from our own (distribution centers) to our stores cost us about $30 million more than it did the year earlier,” he said. “We estimated that our inbound impacted us by roughly that same amount. For the third quarter, the cost of both inbound and outbound freight due to the increase of price of fuel was up in the mid-teens over the second quarter. We've had significant headwind when you consider this expensive situation.”
Utilities on a comparable-store basis also cost a hefty sum, Schoewe added, at an additional $20 million in the United States.
But on a positive note, consolidated inventories were up 8.6 percent, “less than our year-to-date sales increase of 9.9 percent,” he said. “Keep in mind that we will continue to see higher in transit inventory as a consequence of our focus on global sourcing.”