December Price Changes At Wal-Mart

Following a monthly assessment of the pricing actions by U.S. Wal-Mart Stores, Inc. WMT, BMO Capital’s Wayne Hood noted that average price reduction in the broad grocery category remained flat in December as compared to November.

Hood maintains an Underperform rating on the company, with a price target of $63.

Price Moderation

The analyst mentioned that the sequential price moderation was offset by more aggressive pricing in the household essentials, beauty and baby categories, while promotions increased year on year but were sequentially relatively flat.

More specifically, average food price reduction improved in December to 17 percent, from 18 percent in November, while the household essentials, beauty and baby categories witnessed elevated sequential average price reductions, as Wal-Mart Stores attempted to take market share in these categories.

“The improvement in average price reductions in Food leaves us believing traffic is in line with management expectations, leading to 4Q16 SSS growth of 1.0 percent to 1.5 percent,” Hood stated.

Margins

Food margins are expected to be in line with expectations, although margins in the household essentials, beauty and baby categories are likely to be under pressure due to more aggressive pricing throughout the quarter.

“As expected, in Entertainment, we see a spike in average price reduction in Electronics, Video Games, and the Photo Center in December. Furthermore, the average price reduction in Toys spiked in November before tapering off at the end of December,” the analyst added.

Wall-Mart Stores' electronics category is likely to generate better margins in Q4, given the average price reductions.

In addition, there was meaningful improvements in price reduction in the apparel category, against the backdrop of lower price reductions in clothing.