Dining out on Walmart's lunch
Walmart's results show that life is still rough for retailers in America
By CR
ON MAY 19th, Walmart, America’s and the world’s biggest retailer, unveiled its first-quarter results. Analysts had been expecting another dip in profits, but the retail giant's performance was even worse than they had thought. Operating profits at Walmart dropped 8.3% to $5.7bn in the three months to the end of April, while sales also dropped 0.1%. That did not please investors: the firm's shares fell 4% in morning trading.
And although Target, one of Walmart’s rivals, is expected to reveal better figures on May 20th, these are still difficult times for American grocers. Last week the Census Bureau reported that retail sales in April were flat. Fears of a economic slowdown, and small pay rises for low- and medium-income households, have all contributed to the rough time supermarket chains are having in America at present.
Even if the economy does start to boom again, both Walmart and Target may continue to struggle. Since the recession, ordinary Americans have apparently been forking over their extra income to dine out rather than buying more food to eat at home. In the past few months, as Mark Perry of the University of Michigan points out, they have been spending more in restaurants and bars than in grocery stores for the first time on record (see chart). Sadly, good news for American consumers won’t necessarily be good for Walmart's shareholders.