Analysts say dollar stores are hurting Wal-Mart

Chains such as Family Dollar have gotten smarter about how to appeal to American consumers, experts say.

By MSN Money Partner Aug 14, 2014 12:38PM
Credit: © Mike Nelson/EPA
Caption: Shoppers outside a Walmart store in the Los Angeles San Fernando ValleyBy Maggie McGrath, Forbes

In the face of yet another quarter of sluggish profit and sales, superstore Wal-Mart (WMT) announced Thursday morning that its full-year profit will be lower than what it had previously forecast. 

And while the company is pointing to costs like investments in e-commerce and higher health care expenses in the U.S. as reason for the lowered guidance, some Wall Street analysts are pointing to the strength in dollar store chains like Family Dollar (FDO), Dollar Tree (DLTR) and Dollar General (DG) as reason for some of Wal-Mart's sales struggles.

Wal-Mart reported Thursday morning that it recorded $120.1 billion in second quarter fiscal 2015 revenue, a 2.8 percent increase over the year-ago quarter that exceeds the analyst consensus by $1 billion. Net income for the quarter ticked up 0.6 percent to $4.1 billion, resulting in earnings of $1.21 per share, a figure that meets the analyst consensus.

Comparable store sales for the quarter (excluding fuel) were flat, a result that Brian Yarbrough, a consumer staples analyst for Edward Jones, called "not something to get excited about." 

In a phone interview, Yarbrough noted that grocery items account for 55 percent of Wal-Mart's business, but as grocery chains like Safeway (SWY) and dollar stores like Family Dollar have gotten smarter with how to appeal to the American consumer, Wal-Mart has suffered.

"I think the lower income consumer continues to be under pressure and they're visiting the dollar stores for fill-in trips. I think that's why Wal-Mart's struggling," he said, noting that if a family wants to pick up just a carton of milk and a loaf of bread to round out the week, "it's a huge hassle" to go to Wal-Mart, whereas the smaller scale of the Family Dollars and Dollar Trees of the world make it much easier for consumers to go there.

Wal-Mart president and CEO Doug McMillon said in a statement Thursday morning that he was pleased with the company's "solid" earnings-per-share results, but added, "as it relates to our challenges in the quarter, we wanted to see stronger comps in Wal-Mart U.S. and Sam's Club, but both reported flat comp sales. Stronger sales in the U.S. businesses would've also helped our profit performance."

McMillon also said that he was encouraged by Wal-Mart's performance in its international segment, Neighborhood Market and e-commerce. Wal-Mart International posted an 8 percent jump in operating income, which grew to $1.5 billion, while global e-commerce sales grew 24 percent, with particular growth in the U.S., U.K., China and Brazil.

Wal-Mart's Neighborhood Markets -- the company's attempt to compete with smaller-scale grocery stores -- posted a 5.6 percent increase in comparable store sales and a 4.1 percent increase in traffic. The company opened 22 Neighborhood Market stores during the quarter and said that it remains on track to open 180 to 200 new units for the year. 

While this should help Wal-Mart compete against companies like Safeway and even Family Dollar, Yarbrough cautions investors against an immediate turn around. 

"Longer term there's value, [and] the small-store format is the right format," he says. "If you're a near-term investor, I don't know what turns the business. I don't know what turns the consumer. I think the consumer continues to struggle, too."

Indeed, pointing to costs from investments in the e-commerce business as well as higher health care expenses in the U.S., Wal-Mart cut its full-year 2015 profit outlook from $5.10 to $5.45 per share to a new range of $4.90 and $5.15 per share. The company said that this implies a third-quarter earnings-per-share range of $1.10 to $1.20.

Following the release of the earnings results, shares of Wal-Mart were flat Thursday at $74.11. Year to date, the stock is down more than 6 percent.

More on Forbes

Aug 14, 2014 1:14PM
dollar stores arent hurting Wal-mart. Wal-marts attitude on how they treat employees and customers is what's hurting their bottom line
Aug 14, 2014 1:22PM
You can get in and out or a "dollar store" in 10-15 minutes. Wal-Mart designs it's stores so you have to go through every department to get to where you want to go, regardless of where it is. Including parking, you're looking at 30-45 minutes. For one or two items, I'd gladly pay a few cents more to save time.
Aug 14, 2014 2:28PM

What a fantastic article about Walmart hurting.  The way they treat their employees is another main reason why many people avoid this dump!

Aug 14, 2014 2:12PM

I have noticed all the items in Walmart have been sneaking up for the past few years. They are now as expensive as the highest price grocery store in our town. I have not been there in a year or more. I don't intend to shop there any time soon.

trouble with Walmart is -- expensive product that is very poor quality

long lines at check out as the stores are too cheap to hire help as the executives are making $250,000,000 a year and if they hire enough check out clerks then the executives would only make $50,000,000 a year and that is against company policy.

Also the restocking people will run you over as the main aisles are full of garbage displays trying to sell over priced products that don't work.

I do not shop at Walmart anymore it's goods are too expensive and nothing is made well in the store.

What happened China -- you use to produce great goods at a cheap price.

Aug 14, 2014 2:43PM
While I do occasionally shop Wal-Mart, I have been visiting my son who live in a town where the nearest Wal mart is more than an hour away.  His town does have a Dollar General and it is real nice to always be greeted by the same manager (for over a year!), get qestions answered correctly, and be out the door in 10 minutes!
Aug 14, 2014 1:57PM
Walmart sucks.  I hope they go out of business!
Aug 14, 2014 2:54PM
Wal-Mart is hurting Wal-Mart.    I stopped shopping at our local Wal"Mart when they decided to scale back their plus size womans department. We are their major demigraphic, yet we are not catered too, it is all for the thin woman.  Secondly, I took photos of how nasty and unkempt the store had become in less than 9 months of opening.  I put them on Wal-Marts Facebook page where they promptly removed them and banned me.  The store looks like December 24 all the time.e
Aug 14, 2014 1:56PM
Stopped at Walmart a couple of days ago to get essentials.  Didn't get anything.  Everything was too expensive.  What savings?
Aug 14, 2014 2:04PM
Chinese Walmart goods are now competing with Chinese Dollar Store goods.
Aug 14, 2014 2:55PM
I am the only person working in my household because of my family's health issues so when I go to the grocery store, my goal is to spend the least amount I can get away with. Stores like Dollar General offer the same items I'm looking for but at a much lower price. Sorry Walmart, us normal people can only spend what we have. I've even started buying my clothes at Goodwill. You have to look a lot harder to find something you like, but every once in awhile you'll get a really nice outfit at an outrageously low price.
Aug 14, 2014 2:53PM
I can't remember ever being in any other store where the employees are as apathetic and clueless as they are in Wal-Mart. In their defense they are given crappy working conditions,low pay and often forced to work overtime off of the clock. In Colorado alone they had to pay 51 million in back pay a couple of years ago for this. 
Aug 14, 2014 2:59PM
Walmart considers "only" making 95 billion dollars 
profit instead of 100 billion a disaster. 
Cry me an effing river.
Aug 14, 2014 2:10PM
There hasn't been a value to Wal-Mart in 20 years.  Their supercenters pretty much ended that.
Aug 14, 2014 3:15PM
Walmart got too big for their britches. Sam Walden had a brilliant idea and the greedy ceo's ruined it.
Aug 14, 2014 3:10PM
Here we go again. Nothing has changed at Wal-Mart,still dirty store,still products that literally rot as your standing in the longggggggggggggg check out lines. Still loading there shelves with "NOT made or produced in America, the list goes on! Funny I refuse to shop there but my husband goes there because of the close to us "sporting goods/fishing section. He stopped in two days ago on a Saturday afternoon and the shelves were practically empty he said--no stock! Brought home a bag of potatoes and strawberries that I ended up tossing more than half out! People can't afford to keep tossing rotten food anymore than they can afford to purchase it. Bottom line, Wal Mart can do better ,they just refuse.
Aug 14, 2014 2:43PM
This only makes sense. Both stores sell shoddy goods and have no real service, but at least the dollar stores are easier to navigate, not as crowded, and actually have some amazing prices every once in a while.
When you need a plastic something or a quick fix for cheap, that's the place to go.

More important, where I live it's mostly Indian/Paki families running these. So at least a family is making a living wage with the business, which is way more than you could say about the Walmart workers.
Aug 14, 2014 1:26PM

OK, OK, let me give it my best V_L impersonation:


The Fed artificially pumps billions and billions into this faux-capitalism society we call America, and the Walton heirs grow richer by the day.  Walmartstreet tricks consumers and investors alike.  Crooked capitalism prevails, and the deck is stacked against the little man.  We demand our economy back.  It is time for the drones to become the oppressors, and turn back the aristocracy.  The future is bleak and dark and bloody.  


How did I do?

Aug 14, 2014 12:44PM
The inheritors of the Walton fortune are worth more than 130 million hard working Americans. What is the point of this article?
Aug 14, 2014 2:40PM
Every one knows Wal-Mart is bad for small business they put them out . I hate shopping at Wal-Mart but I all most have no choice . I wish someone would do research like if no one went their for a year . What would happen would it close would my small businesss improve .
Please help us to maintain a healthy and vibrant community by reporting any illegal or inappropriate behavior. If you believe a message violates theCode of Conductplease use this form to notify the moderators. They will investigate your report and take appropriate action. If necessary, they report all illegal activity to the proper authorities.
100 character limit
Are you sure you want to delete this comment?


Copyright © 2014 Microsoft. All rights reserved.

Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.


StockScouter rates stocks from 1 to 10, with 10 being the best, using a system of advanced mathematics to determine a stock's expected risk and return. Ratings are displayed on a bell curve, meaning there will be fewer ratings of 1 and 10 and far more of 4 through 7.

123 rated 1
262 rated 2
480 rated 3
651 rated 4
649 rated 5
629 rated 6
616 rated 7
496 rated 8
346 rated 9
111 rated 10

Top Picks

TAT&T Inc9



Top Stocks provides analysis about the most noteworthy stocks in the market each day, combining some of the best content from around the MSN Money site and the rest of the Web.

Contributors include professional investors and journalists affiliated with MSN Money.

Follow us on Twitter @topstocksmsn.