Walmart Stores Inc.'s business offers valuable insight into how Americans are reacting in the slow economic recovery: They will spend, but only if they believe they're getting the lowest prices.
The world's largest retailer guaranteed holiday shoppers that they'd get the lowest prices on merchandise. As a result, bargain-hungry shoppers flocked to Walmart in the fourth quarter, helping it to record its first increase in store traffic in at least two years. But the company's margins suffered.
"Core customers remain cautious about their finances," said Mike Duke, Walmart's president and chief executive, in a statement.
The new consumer behavior is likely to have an impact on companies of all shapes and sizes as they struggle with how to lure shoppers in with low prices without cutting them so much that it erodes profits.
Walmart, which draws nearly 10 percent of all non-automotive spending in the U.S., highlights the compromise companies have to make when they focus on rock-bottom pricing in the still-weak economy.
Walmart has struggled since the recession as its core low-income customers at its U.S. stores have been hard hit by joblessness and other challenges. Meanwhile, the business, which accounts for 62 percent of the company's revenue, had veered away from its low-price strategy.
In the third quarter of last year, Walmart reversed a string of quarterly sales declines at stores open at least a year -- an indicator of a retailer's health. Walmart ended the slump that lasted for more than two years in part by refocusing on offering low prices throughout the store, instead of temporarily slashing prices on select items.
In the fourth quarter, Walmart continued the trend. It posted its second consecutive quarterly gain in revenue at stores opened at least a year in the U.S.
Walmart said Tuesday that revenue at those stores rose 1.5 percent in the quarter, slightly below the 1.6 percent gain analysts polled by FactSet had expected. Overall, its U.S. business had a 2.1 percent increase in revenue at stores open at least a year, including a 5.4 percent rise at Sam's Clubs.
Net sales, excluding membership fees from its Sam's Club division, rose 5.9 percent to $122.28 billion. Analysts had been expecting revenue of $123.9 billion.
While sales rose, margins fell. Overall gross margin was 24.3 percent in the quarter, down from 23.9 percent in the year-ago quarter.
The discounter, based in Bentonville, Ark., said net income was $5.16 billion, or $1.50 per share in the three months ended Jan. 31. That compares with $6.05 billion, or $1.70 per share, in the year ago period.