Walmart sales boom, but bottom line result underwhelms

Walmart sales in the US rose at the strongest rate in more than a decade during the latest quarter – but the company’s bottom-line performance failed to impress some analysts.

Total global revenue reached US$128 billion, $4.7 billion more than during the same period last year. Comparable-store US sales growth rose 4.5 per cent, led by strong grocery, apparel and seasonal performance. The average ticket sale and foot traffic each grew by 2 per cent.

International sales rose by 4 per cent.

“Thanks to the hard work of our associates, we had a great quarter with strong results and momentum across the business,” said Walmart president and CEO Doug McMillon.

“We’re continuing to aggressively roll out grocery pickup and delivery in the US, and we recently announced expanded omni-channel initiatives in China and Mexico. Customers have choices, and we’re making it easier for them to choose Walmart.”

However, despite the rising sales, Walmart’s profit fell due to a $4.5 billion loss booked on the sale of 80 per cent of the Walmart Brazil business, which pushed the company $861 million into the red.

“Underwhelmed”

GlobalRetail Data MD Neil Saunders was underwhelmed, however.

“In terms of sales, this has been a glittering quarter for Walmart with strong uplifts across most parts of the business. However, in terms of profit, this has been a quarter that Walmart would rather forget.”

Saunders described the 3.7 per cent fall in operating profit as “a relatively weak outcome”.

“Paradoxically, even if it looks bad, the net loss is forgivable as it is related to essential restructuring as Walmart moves its attention away from peripheral parts of its business. However, the decline in operating profit is more concerning as it reflects ongoing pressures from investing in lower prices, customer service, digital infrastructure, and store refurbishments, as well as increased labour and transportation costs. These pressures are unlikely to dissipate as the year progresses.”

However Saunders said that – painful as they are – the erosion of profitability and margins “are necessary evils”.

“Maintaining a price leadership position as well as ensuring the company is an omnichannel leader are clear priorities that require investment. These investments are being made and they are delivering growth, which we believe is a sign that Walmart is succeeding in securing its future as one of the world’s leading retailers.”

Saunders was impressed by the 40 per cent rise in e-commerce revenue during the quarter. “Much of this is down to improvements to the website, which is easier to shop, has a much wider assortment, and is now more connected than ever to services like in-store pickup. From our data, the addition of more premium brands, including the Lord & Taylor initiative, is starting to have an impact as there has been a notable increase in the number of higher-income customers visiting the site over the past couple of months. This is exactly the kind of result Walmart needs to achieve if it is to compete more effectively with Amazon.”

Saunders concluded: “Admittedly, all of these numbers have been delivered against the backdrop of a strong economy and a confident consumer. However, Walmart is taking share across a number of categories and is becoming a much more significant player in digital. We remain very confident about its future.”

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