Wal-Mart's decline unsettles retail sector

updated 5:19 p.m. ET Nov. 30, 2006

Wal-Mart Stores Inc. unsettled the retail industry Thursday, reporting a sales decline for the first time in 10 years and warning that its holiday sales would be disappointing. The discounter’s news, coupled with a jump in unemployment benefit claims, raised concerns about the strength of the retailing sector at a critical time of the year.

Wal-Mart’s confirmation of weak November sales and its announcement that its December same-store sales gain would be no better than 1 percent came as the nation’s retailers reported an overall mixed performance for the month. Same-store sales reflect business at stores open at least a year and are the industry standard for measuring a company’s strength.

Wal-Mart’s disappointment was a sharp contrast with results from discount rival Target Corp., which beat Wall Street forecasts, and Federated Department Stores Inc., which far exceeded expectations. Other retailers had mixed sales; J.C. Penney Co. and Costco Wholesale Corp. both fell short of Wall Street projections.

Industry analysts generally believed the world’s largest retailer is struggling with its own internal problems, not an industry-wide malaise. Still, the discounter’s woes raised the possibility that it would incite increasingly aggressive price wars this season that would slice into retail profits. And a Labor Department report Thursday that showed a surprising increase in claims for jobless benefits last week added uncertainty to the outlook for holiday sales.

The timing of Wal-Mart’s news couldn’t have been worse, coming just after most consumers started holiday shopping. While many retailers had a strong Thanksgiving weekend, Wal-Mart warned Saturday that its November sales would be weaker than expected.

Wal-Mart’s 0.1 percent dip in same-store sales for the month is in line with the reduced forecast from analysts surveyed by Thomson Financial, which forecast unchanged growth.

Including a drop in gasoline revenues from its Sam’s Club division, which Wal-Mart did not include in its calculation, same store-sales fell 0.3 percent.

Wal-Mart has struggled in recent months with a mix of problems, including the fact that its lower-income customers were hurt by soaring gas prices. But the company’s lackluster sales have persisted even as the cost of gas eased, an indication that there are other factors that are dragging down Wal-Mart’s results.

“This is pretty discouraging,” said Ken Perkins, president of RetailMetrics LLC, a research company in Swampscott, Mass. But he added that Wal-Mart’s weak sales “will not be a harbinger of a broad-based weakness across the retail sector.”

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