After the horror show of the first quarter, Walmart had so much to prove domestically in the second quarter. And it has again come up short.

After the horror show of the first quarter, Walmart had so much to prove domestically in the second quarter. And it has again come up short.

A US comparable store decline of 0.3% was below earlier management guidance of 0-2%, guidance that was endorsed as recently as the Annual Shareholder Meeting in June. This marks the second quarter that US comps have been both in negative territory and below guidance. Those accusing Walmart of ‘crying wolf’ in its bullishness (ourselves included) may feel vindicated.

Although ostensibly an improvement on first quarter (when US comps were down -1.4%), the second quarter was arguably a weaker performance. Although the US consumer remains challenged, the factors that derailed performance so horribly in the first quarter (delays in tax refunds, poor weather and lower inflation in food) have all receded and the operating backdrop in the second quarter was far more benign.

One telling factor is that the company seems to have woefully underestimated the effect of income tax increases that came into force at the end of 2012 and continue to weigh heavily on Walmart’s core customer demographic.

‘Headline’ growth of 2.9% (or +4.4% at constant currency rates) at the International division also paints a flattering picture of what lies beneath.

The top-line growth figure masks a very mixed performance, but trading remains almost universally tough. Mexico, the UK and Canada have been previously highlighted as the three key drivers of international profitability, but all three markets are challenged -  trading has been soft in Mexico, the UK remains a mature and highly competitive environment, while the arrival of Target in Canada has intensified pressure on a business already struggling to achieve comp growth.

There were some positives in the second quarter - e.g. continued comp growth in China on the back of a prudent location planning strategy, but by and large, the International division failed to provide much comfort.

Predictably, ecommerce was flagged as a bright spot, with year-on-year growth sustained at around the 30% mark. With a more coherent e-commerce strategy taking shape, investments in businesses such as Yihaodian in China are looking increasingly shrewd.

Stephen Springham is senior retail analyst at Planet Retail