How Wal-Mart disappoints both investors and customers

Shares of Wal-Mart tumbled Thursday after the world's largest retailer warned that profit for the year would be below analysts' expectation because consumers spent cautiously in the face of brutal winter weather and cuts in government benefits.

Those reasons, though, don't tell the whole story.

Wal-Mart has fared poorly in the closely watched American Customer Satisfaction Index (ASCI) for years, ranking dead last among its peers since 2007. Experts have argued that if the company, which has long touted its low prices, wants to regain the momentum it has lost in recent years, it needs to address this weakness.

"Price is important to a first purchase, to get the customer in the door, but typically it's high quality that keeps the customer coming back," said ASCI Managing Director David VanAmburg, in an email. "In the case of Wal-Mart, the chain has been able to offer the lowest prices for such a long time that there has been for some shoppers an almost irresistible appeal despite the many problems with quality, such as unkempt shelves, lack of inventory and lack of customer service, all of which can be related to a paucity of staffing relative to other retailers that, of course, helps Wal-Mart keep its prices down in the first place."

Officials from Wal-Mart, which posted notable gains during the recession by attracting bargain-hunting shoppers, couldn't immediately be reached for comment. Under new CEO Doug McMillon, the company is trying to win back consumers through smaller-format stores while bolstering its e-commerce operations. Customer service, however, remains a concern.

"I am working with the leadership team on enhancing the business to improve our customer relevance," McMillon told analysts during the company's earnings conference call. "We have a compelling customer proposition, but we can get better at running some of our core operations, and we will."

The Bentonville, Ark., company  forecasted earnings for the fiscal year ending in January 2015 of $5.10 to $5.45 per share, well under the $5.55 analysts surveyed by Bloomberg News had expected. Not surprisingly, Wal-Mart shares traded down on the news Thursday, falling 1.8 percent to $73.52.

Earnings in the current quarter weren't great, either. Net income plunged 21 percent to $4.43 billion, or $1.36 per share. Excluding on-time items, profit was $1.60 per share, a penny better than expectations. Sales hit $129 billion, lagging analysts' forecast of $130 billion. Same-store sales, which measure activity at stores open for at least a year, fell 0.4 percent, excluding fuel.

Though the brutal weather and cuts in government benefits hurt Wal-Mart's bottom line, they also affect the company's rivals, which seem to be faring better.

"Kroger is growing, and the dollar stores' grocery business is growing," said Steve Beck, founder and managing partner of managing consulting firm cg42, which advises retailers but doesn't have Wal-Mart as a client. "Wal-Mart's same-store sales have been falling for multiple quarters now. This is not a one-quarter problem."