By Sarah Nassauer
Wal-Mart Stores Inc. is holding its ground against Amazon.com
Inc.
The world's biggest retailer posted its strongest quarterly U.S.
sales growth in nearly a decade Thursday, boosted by a big jump in
e-commerce and strong store traffic at a time when many traditional
retailers are struggling to keep their business growing.
Shares jumped more than 8% in morning trading Thursday, setting
an all-time high. The company's share price has rallied 41% so far
this year, much of the gains coming since October after Wal-Mart
said it would grow profits and sales in its 4,700 U.S. stores as
well as online.
"I can tell you we've got plenty of work to do still in our
stores. But I'm pleased with the momentum and pleased with the plan
we have in place, " said Greg Foran, chief executive of Wal-Mart
U.S., on a conference call with reporters.
The results buck a string of mostly downbeat retail reports this
week, from big-box stores like Target Corp. to off-price operator
TJX Cos., as they battle a shift to online shopping and heavy
discounting. One exception, home-improvement retailer Home Depot
Inc., continued to log strong gains, boosted by hurricane recovery
sales.
Wal-Mart, which gets about half of its U.S. revenue from
groceries, said Thursday sales at existing stores excluding fuel
rose 2.7% in its latest quarter -- its 13th straight quarter of
gains and the fastest growth since the quarter ended May 2009. The
company highlighted its grocery business, saying that section
delivered the strongest quarterly same-store sales growth in more
than five years.
The company has focused on improving its grocery business and in
the wake of Amazon's Whole Foods acquisition earlier this year,
ramped up efforts to let shoppers order groceries online. Its
grocery business delivered the strongest quarterly same-store sales
growth in more than five years, including sales from online grocery
pickup now available in 1,100 stores.
The online and in-store growth is "impressive and underscores
the company's determination to not only defend its leading position
but to extend it," said Neil Saunders, managing director at
GlobalData Retail.
Wal-Mart, which has acquired online seller Jet.com and niche
apparel sites like Bonobos and ModCloth, said e-commerce sales in
the U.S. jumped 50% from a year ago. In the previous quarter, U.S.
e-commerce sales rose 60%. It doesn't break out quarterly
e-commerce sales figures. Wal-Mart expects its global e-commerce
sales to hit $17.5 billion this year, still a fraction of the
company's nearly half a trillion dollars in annual revenue.
Wal-Mart head of U.S. e-commerce Marc Lore declined to share how
the company tracks Amazon's market share versus its own.
"Internally we are really focused on just getting the fundamentals
right," Mr. Lore said on a call with reporters. "We can see the
things we have done are increasing top-line sales."
Amazon is expected to capture about 44% of U.S. online sales
this year, up from 38% last year, according to eMarketer, a
research firm. Wal-Mart will grow to about 3.6% from 2.8% last
year, the firm said.
Still, as more shoppers buy items online, often from Amazon,
many traditional retailers have struggled to simultaneously keep
sales and profits growing as more invest to improve stores or
compete online. Wal-Mart's profit margin fell as it lowered prices
to compete and as lower-margin e-commerce sales grow. The
hurricanes also cut into its margin.
Wal-Mart is focused on cutting costs to improve margins, Chief
Financial Officer Brett Biggs said in an interview. "To be candid
it's not what it used to be, so we are getting back to some
everyday low cost roots."
Wal-Mart has also worked to boost revenue elsewhere, for example
it started charging more for some products on Walmart.com than in
stores, in part to offset the cost of home delivery and improve
online profitability, The Wall Street Journal reported earlier this
week.
In recent years, Wal-Mart has shifted its growth strategy from
building more cavernous supercenters to improving existing stores
and investing in e-commerce. In 2015 it closed more than 150 U.S.
stores. It plans to build just two dozen stores next fiscal year
and has vowed to cut more costs.
Wal-Mart executives say they will boost U.S. sales by bringing
more shoppers to existing locations and driving online sales.
Wal-Mart has raised starting wages for store employees, refurbished
stores and bought smaller online retailer startups.
The company also said it was close to settling a yearslong
foreign-bribery probe. Wal-Mart, which spent more than $800 million
to investigate and upgrade compliance following allegations of
bribery in Mexico and other countries, said it would record a $283
million accrual charge related to the settlement as talks with the
U.S. Department of Justice have "progressed."
Same-store sales at Wal-Mart's U.S. stores came in well above
the 1.8% growth analysts polled by Consensus Metrix were expecting.
Wal-Mart said results were boosted by more shoppers coming to
stores, higher e-commerce sales and the recent hurricanes. Traffic
rose 1.5%.
Consumer spending has been healthy for most of the year, buoyed
by low inflation that has keep prices in check and high employment
that has put more money in American household budgets. But much of
that spending hasn't flowed to tradition stores. People are
spending more on cars and entertainment, and increasingly shopping
online.
Retail industry organizations and consultants have largely
predicted strong holiday sales during the fourth quarter. However,
some analysts have painted a less rosy picture for traditional
retailers. "We don't share in that same optimism," said Morgan
Stanley analyst Simeon Gutman in a recent research note. "Spending
dollars may be constrained by headwinds like higher gasoline prices
and basically a growing share among fewer retailers."
In the third quarter, Wal-Mart's quarterly revenue increased
4.2% to $123.18 billion. The company's profit fell to $1.75
billion, or 58 cents a share, compared with $3.03 billion, 98 cents
a share, a year ago as it took charges for paying down debt early
and the bribery probe settlement.
Austen Hufford contributed to this article.
Write to Sarah Nassauer at sarah.nassauer@wsj.com
(END) Dow Jones Newswires
November 16, 2017 11:24 ET (16:24 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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