Walmart Extends Streak of Sales Growth

Date: Friday, May 17, 2019
Source: The Wall Street Journal

Gains fueled by online grocery sales, strong Easter buying season

Walmart Inc. WMT -0.26% said its sales rose in the first quarter, adding to over four years of sales increases as the retail behemoth grabs market share from struggling competitors and grows online.

Sales at U.S. stores and websites operating at least 12 months grew 3.4% during the quarter ended in April, boosted by online purchases, including grocery, and a strong Easter buying season, the company said Thursday.

Walmart executives also said the retailer had raised prices on some products in response to tariff increases amid a U.S. trade spat with China, and that merchants are working to mitigate cost increases.

In the U.S., sales grew steadily throughout the quarter, the company said, even as national data released earlier in the week showed a slight slowdown in spending at U.S. retailers in April. Meanwhile, Macy’s this week reported slightly better-than-expected comparable salesin the latest quarter, up 0.6%.

The health of the broader retail sector will come into sharper focus next week when several companies including Target Corp. , Best Buy Co.and J.C. Penney Co. report earnings.

While some retailers have closed stores or seen sales sputter in recent years as they adjusted to the rise of online shopping, quarterly comparable sales have risen consistently in Walmart’s primary U.S. business for over four years.

Walmart has shifted strategies, significantly reducing spending on building new stores in favor of growing online, lowering prices and adding more services in physical stores such as online grocery pickup.

The company is growing quickly online, in large part by adding more stores that offer pickup and delivery options, increasing online grocery sales.

Walmart’s e-commerce sales are still a small percentage of the retail giant’s overall sales and of total U.S. e-commerce sales. Walmart U.S. e-commerce sales grew by 40% to $15.7 billion in the fiscal year ended Jan. 31.

While Walmart has made inroads in e-commerce, it remains far behind Amazon.comInc. in online sales. Amazon is working to build its own grocery business and shortening delivery windows. Last week, Walmart said it has invested in its online delivery networkover the past two years to speed delivery times.

Walmart has also added more fashion and home brands to, efforts that executives said are bearing fruit. Home and fashion, generally higher-margin categories than groceries, are growing considerably faster than other categories on its website, said Marc Lore, head of Walmart’s U.S. e-commerce business, on a call with reporters Thursday.

Walmart stocked more goods during the quarter than the same period last year. Inventories were up about 5.9% as the retailer accelerated buying in toys and shoes in response to competitor bankruptcies in those categories, said Walmart U.S. Chief Executive Greg Foran on the call, while buying more in other areas such as patio furniture where there is a chance to build market share. Walmart is also bulking up product quantities in its e-commerce fulfillment centers as it works to deliver online orders more quickly.

Walmart faces higher potential product prices after the Trump administration last weekincreased tariffs on about $200 billion of goods imported from China to 25% from 10% and threatened a further set of tariffs on all Chinese imports. Executives have said they are working to bring in some imports earlier than previously planned ahead of rising tariffs.

The company’s shares were up 1.9% in afternoon trading Thursday.

Walmart has raised prices on some products in response to the tariffs, Brett Biggs, the retailer’s chief financial officer, said in an interview. Merchandisers are working to manage costs by changing product selection and reducing manufacturing costs elsewhere, he said.

Walmart is the largest importer in the country, according to the Journal of Commerce. But around 56% of its U.S. sales are from groceries, which are less likely to come from China than other products such as Christmas lights or apparel. Around two-thirds of Walmart’s purchases are made in the U.S., company executives have told investors.

Profits continue to come under pressure as more revenue comes from lower-margin online sales and online investments continue. Walmart’s operating income in the quarter fell 4.1% to $4.9 billion, in part because its purchase of Indian e-commerce startup Flipkart last year is weighing on profits as expected.

In the U.S., the largest piece of Walmart’s business, operating income grew 5.5%, as some transportation costs subsided and online sales margins improved, countered by continued efforts to lower prices.

Adjusted earnings per share slipped 0.9% to $1.13.

E-commerce sales continued to rise, boosted by a rapid expansion in online grocery offerings, up 37% in the U.S. during the quarter. Walmart has said it expects U.S. e-commerce sales to grow 35% for the full fiscal year.

Total company revenue rose 1% to $123.9 billion from $122.7 billion during the same period last year.