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Wal-Mart's holiday wish: Better sales

By Parija Kavilanz, senior writer

NEW YORK (CNNMoney.com) -- Wal-Mart's CEO told analysts Wednesday that although the world's largest retailer has been losing sales to its competitors this year, he expects sales to improve in the critical holiday shopping season.

"We expect positive sales result in the fourth quarter," Mike Duke, Wal-Mart's CEO told analysts at the company's annual analysts meeting in Bentonville, Ark.

However, Duke did not specify by how much he expects Wal-Mart's fourth quarter sales to increase. This optimism is driven in part by a much easier sales comparison from the same period a year ago when Wal-Mart suffered a same-store sales decline of 1.6%.

For Wal-Mart (WMT, Fortune 500) and most other retailers, the November-December months can account for up to half of their sales and profits for the year. Wal-Mart has struggled to lift sales at its discount stores this year and has even lost market share to its other value-priced and dollar store competitors.

Wal-Mart's same-store sales this year, which measure sales at its stores open at least a year, fell 1.4% in its first quarter and were also down 1.8% in the second quarter.

It expects third-quarter same-store sales to be range between a 2% decline and an increase of 1%.

Fixing mistakes. Bill Simon, head of Wal-Mart's U.S. division, reiterated the company's commitment to fixing merchandising mistakes it made while navigating through the recession.

Those errors proved to be costly for its business because they limited customer choice and hit sales.

But despite those missteps, Simon echoed Duke's optimism, saying that he expects an improvement in Wal-Mart's business in the year-end quarter.

Wal-Mart's executives did not provide a fourth-quarter same-store sales estimate to analysts. The company is expected to provide same-store-sales guidance for the fourth quarter when it reports its third-quarter results on Nov. 16.

However, the company expects total revenue to increase between 4% to 6% this year.

"We're ready for the [holidays]. Retailers are focused on customers' needs instead of wants. We're ready to deliver," Simon said.

Simon said Wal-Mart's sales benefited at the outset of the recession as consumers became more budget conscious and traded down to lower-priced necessities.

But Wal-Mart's core shoppers, households in the $50,000 to $70,000 income bracket, are still struggling because of the economy.

Also, persistent long-term unemployment is impacting sales. "For many [shoppers], their unemployment assistance has run out," he said.

"In this environment, we should be thriving," he said.

Instead, he said the company has not been doing a good job in catering to the the needs of its core shoppers. "We're getting customers in the store but we're not serving them," he said. "We're only serving 22% of their needs. So they are going elsewhere."

He blamed some recent initiatives, such as shrinking product variety and changing in-store layouts for alienating Wal-Mart shoppers. He added that Wal-Mart has already taken steps to rectify the problem, including adding back product variety and improving product displays.

Gadgets and games to its rescue? For its holiday strategy, Simon said Wal-Mart was placing heavy emphasis on toys and electronics.

"Customers will see our offerings and be very happy," he said, adding that Wal-Mart was rolling out Apple's (AAPL, Fortune 500) iPad into about 2,500 Wal-Mart stores. Sam's Club executives also said the iPad would be in Sam's Club locations over the holidays.

Wal-Mart is also setting up a "Santa's gift shop" display in its stores to showcase the hottest holiday toys, he said.

Additionally, the retailer will offer an "order on Walmart.com and pick up same day" in stores service for the holidays.

Next year, the company will also test online gorcery sales, he says.

How will Wal-Mart grow? Simon offered more details about Wal-Mart's growth plans.

The retailer announced earlier this year that it planned to expand its domestic business into urban markets and smaller towns.

"These new formats will give us access to parts of the country that have been too small to accommodate our large formats," Simon said.

In the past, Wal-Mart has been unsuccessful in expanding its large-size 195,000 square feet supercenter stores into cities.

He said Wal-Mart will open up as many as 24 smaller stores in Chicago. Overall, he said Wal-Mart plans to open between 185 to 205 stores of which 30 to 40 will be smaller-sized stores. To top of page

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