NEW YORK ( TheStreet) -- Wal-Mart ( WMT - Get Report) reported its fifth straight quarter of U.S. sales declines, leaving investors asking how the discount behemoth plans to regain shoppers. While the No. 1 retailer forecasts third-quarter same-store sales between a decline of 2% to a increase of 1%, exactly how it plans on returning to positive sales territory remains unclear.
There's no denying that the aggressive rollbacks put in place during the quarter didn't generate the traffic Wal-Mart expected. Thus, the company will return to its strategy of "everyday low prices." During the second quarter, Wal-Mart's total revenue rose 2.8% to $103.73 billion, but this fell below analysts' expectations of $105.33 billion. Wal-Mart's U.S. same-store sales dropped 1.8%, at the low range of forecasts. Chief Financial Officer Tom Schoewe said on call with reporters that the Wal-Mart customer is under such severe pressure that even dramatic discounts are not enough to entice spending. So what is? "At the end of the day it is a function of price and assortment," Schoewe said. "When we get the two right, that's when we are successful." Wal-Mart, of course, hasn't gotten the two right for some time, though it appears to be taking proactive steps to mitigate the issue. Wal-Mart is currently in the process of restocking some merchandise that it misguidedly cut under its "Project Impact" initiative. "We took too much out and we are adjusting that," Schoewe said. Still, problems loom for Wal-Mart's discretionary segments, especially apparel. "Apparel is not where we want it to be, but it is an opportunity for us," Schoewe said. Wal-Mart is now planning on "returning to its roots" with apparel basics like socks, underwear and t-shirts. Improving its assortment, however, may prove difficult, as Wal-Mart is currently in the process of finding a replacement for Chief Merchandising Officer John Fleming, who stepped down earlier this month after Bill Simon was named the new CEO. Schoewe said that it is the company's intention to fill the position and they are looking at candidates internally and externally.
Regardless, a lot is riding on merchandise, which Schoewe said will be vital for the holiday season. "While it is a little early right now, the customer is conservative -- and how exciting things are from a product standpoint will be key for the holiday seas," he said. In an effort to offset a weak top line, Wal-Mart is intently focused on curbing expenses. Management believes expense leverage will be enough to drive earnings going forward and upped its full-year forecast to $3.95 to $4.05 a share. Expense leverage has already been the glue to earnings, and in the second quarter profit rose 3.6% to $3.6 billion, or 97 cents a share, compared with $3.47 billion, or 89 cents, in the year-ago period. While Schoewe said the real issue here is the macro environment not its competition, investors will get a better picture on how true this is when rival Target ( TGT) reports its second-quarter results on Wednesday. Target has been reporting increases in same-store sales month over month, and analysts are looking for a profit of 92 cents a share on revenue of $15.64 billion. -- Reported by Jeanine Poggi in New York. Follow TheStreet.com on Twitter and become a fan on Facebook.