WMT Walmart Inc

By Sarah Nassauer and Austen Hufford 

Wal-Mart Stores Inc.'s sales rose in the latest quarter, boosted by an e-commerce surge and strong grocery sales, as the world's largest retailer continues to brush off the malaise afflicting some competitors.

But as has become typical for brick-and-mortar stores, the growth came at a cost. The company invested in lowering prices, improving stores and driving online sales, and in the quarter its expenses rose and margins fell.

Sales at Wal-Mart's U.S. stores open at least a year rose 1.8% in the fiscal second quarter ended July 28 -- the 12th consecutive increase -- boosted by a 1.3% rise in foot traffic.

"Our customers are responding to the improvements in stores and online," Wal-Mart Chief Executive Doug McMillon said Thursday.

The world's top retailer by sales said it expects third-quarter earnings of 90 cents to 98 cents a share. It said it sees full-year profit of $4.30 to $4.40 a share, compared with an earlier estimate of $4.20 to $4.40.

The strong sales figures come at a time of stiff competition among retailers facing Amazon.com Inc. While U.S. consumer spending appears strong, according to July sales data at retailers and restaurants released Tuesday, some apparel and department-store chains are struggling with customers' changing shopping habits. U.S. grocers, of which Wal-Mart is the largest by sales, are battling over prices.

Results at other companies have varied this season, with department stores Macy's Inc. and Kohl's Corp. reporting declining sales, though both pointed to signs of improvement. Sporting-goods retailer Dick's Sporting Goods Inc. posted a sluggish 0.1% sales increase in existing stores, while Home Depot Inc. and discounter TJX Cos. said their quarterly sales were strong. On Wednesday, Target, which like Wal-Mart has put a renewed focus on lowering prices, reported sales growth and raised its profit forecast.

Wal-Mart's second-quarter online sales in the U.S. surged 60%. The company purchased online retailer Jet.com in September, followed by deals for smaller sites such as ModCloth, Moosejaw and ShoeBuy. Jet.com founder Marc Lore took the helm of Wal-Mart's U.S. e-commerce operations, and he has helped advance services like two-day shipping on more products and discounts on in-store pickup for some orders. Mr. Lore told reporters on Thursday that those efforts are driving the gains in online sales.

Wal-Mart U.S. CEO Greg Foran said the company plans to offer online grocery pickup in 1,100 stores by the end of the year.

To pay for the efforts, the company over the past year has used automation to replace some jobs and laid off more than 1,000 corporate employees. It has also pressured suppliers to cut their prices, increased the fees they pay to pass inventory through warehouses and narrowed the shipping window suppliers must hit to avoid fines.

Even so, Wal-Mart's U.S. gross margin fell and operating expenses rose 3.9% in the second quarter.

"We are not at the place we want to be from an expense standpoint," Wal-Mart finance chief Brett Biggs said in an interview.

Wal-Mart shares were off 1.9% at $79.46 in midday trading.

In a note, GlobalData Retail analyst Neil Saunders said that Wal-Mart can withstand the pressure, calling it "one of the few firms that have the firepower to cope with the push toward compressed prices and margins."

Wal-Mart's grocery sales grew as it lowered prices and worked to improve its fresh offerings. Executives are focused on the category in the wake of Amazon's purchase of Whole Foods Market Inc. in June and the U.S. expansion of discount grocers like Germany's Aldi and Lidl. Food categories delivered Wal-Mart's strongest quarterly sales in existing stores in five years, aided in part by inflation, said the company.

Over all, Wal-Mart earned $2.9 billion, or 96 cents a share, compared with $3.77 billion, or $1.21 a share, in the year-earlier second quarter. On an adjusted basis, which excludes certain debt and asset-sale-related charges, earnings were $1.08 a share, up from $1.07 a share. Revenue grew 2.1% to $123.36 billion.

Write to Sarah Nassauer at sarah.nassauer@wsj.com and Austen Hufford at austen.hufford@wsj.com

(END) Dow Jones Newswires

August 17, 2017 15:38 ET (19:38 GMT)

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