American consumers throw off the hair shirt

American consumers, whose debt-fuelled spending was the engine of global growth until the credit crisis, appear to once again be trading up to more expensive purchases, after two years of hair-shirt habits.

Retailers reporting earnings yesterday told a tale of two consumer economies, as the discount giant Wal-Mart said its core, low-income customers were still struggling while the upscale department store chain Saks boasted better-than-hoped profits.

Analysts said Wal-Mart is losing some of the better-off customers who headed to its stores during the recession in search of bargains. However, the picture for the overall economy in the medium-term remains cloudy.

Wal-Mart disappointed Wall Street with its outlook for sales in the current quarter, even as its profits in the three months to 30 April beat expectations. "Our customers, particularly in the United States, are still concerned about their personal finances and unemployment, as well as higher fuel prices," Mike Duke, the company's chief executive, said.

The company promised to expand overseas to mitigate the effects of the sluggish US economy, and said that sales in its international division had surpassed 25 per cent in the most recent quarter. Overall, the company reported net income of $3.32bn, up 10 per cent on the same three-month period in 2009, despite a 1.1 per cent decline in like-for-like sales in the US.

Joel Bloomer at Morningstar told clients to look past the disappointing forecasts. "Despite indications of some trading up, we still believe the economic recovery will be relatively mild, suggesting that Wal-Mart's low-price strategy will continue to resonate with lower-income consumers," he said. "Moreover, we are optimistic about its international growth opportunities."

Redbook Research said yesterday that US chain store sales are running up 2.9 per cent over last year. Its weekly report offers a sales-weighted index of year-over-year same-store sales growth in a sample of general merchandise retailers representing about 9,000 stores.

Saks, which operates high-end department stores, reported a profit of $18.8m in the quarter ended 1 May, compared with a loss of $5.1m in the same period last year, when the recession was at its height. The company said it had not had to offer as many money-off deals on its merchandise. And it raised its outlook for the rest of the year to reflect a creeping optimism, saying comparable store sales growth will be in the "mid-single digit percentage range", rather than the low to mid-single digit range it had previously forecast.

Similarly positive noises were made yesterday by the largest US DIY chain, Home Depot. Although it is still to see a recovery in big-ticket purchases such as new kitchens, or much in the way of recovery among its professional builder customers, homeowners are making smaller purchases, leading it to upgrade its profit forecast for the year.

Asda suffers first fall in sales in four years

Asda, the UK supermarket chain owned by Wal-Mart, saw sales decline in the early months of 2010 for the first time in four years, and warned that tough times would continue.

Andy Bond, the chairman, said high petrol prices and the prospect of tax increases under the new Government led shoppers to keep a tight grip on their purse strings.

"The market has slowed down significantly since the turn of the year, and I expect conditions to remain tough for some time," he said. Like-for-like sales, excluding petrol, were down 0.3 per cent, the first fall since early 2006. Mr Bond called the figure "disappointing".

A sharp slowdown in food price inflation and new store openings by rivals Tesco, Morrisons and Sainsbury's also contributed.

Stephen Foley