By Sarah Nassauer
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (November 17, 2017).
Wal-Mart Stores Inc. is holding its ground against Amazon.com
Inc.
The world's biggest retailer on Thursday posted its strongest
quarterly U.S. sales growth in nearly a decade, boosted by a big
jump in e-commerce and increased store traffic at a time when many
traditional retailers are struggling.
Wal-Mart shares rose nearly 11% on Thursday to an all-time
closing high of $99.62. The stock has rallied 44% so far this year,
much of the gain coming after the retailer in October gave an
upbeat forecast for profit and sales in its 4,700 U.S. stores and
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, " Greg Foran, chief executive of Wal-Mart U.S.,
said on a conference call with reporters on Thursday.
The company's fiscal third-quarter results bucked a string of
mostly downbeat reports from retailers this week, including big-box
stores like Target Corp. and off-price operator TJX Cos., as they
battle a shift to online shopping and heavy discounting. One
exception was home-improvement retailer Home Depot Inc., which
continued to log strong gains with a boost from hurricane-recovery
sales.
Wal-Mart, which gets about half of its U.S. revenue from
groceries, said Thursday that sales excluding fuel at stores open
more than a year rose 2.7% in the period ended Oct. 27 -- its 13th
straight quarter of gains and the fastest growth since the spring
of 2009.
The company has focused on improving its food business, and in
the wake of Amazon's Whole Foods acquisition earlier this year has
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.
Wal-Mart's profit margin fell in the latest latest period, and
some analysts questioned whether Wal-Mart shares could rise further
with margins under pressure from investments made to boost both
in-store and onlinesales. "Any way you slice it, Wal-Mart seems
expensive," said Morgan Stanley analyst Simeon Gutman in a research
note.
Still, investors on Thursday appeared to embrace a new narrative
for Wal-Mart that has it well-equipped to battle Amazon, said Mr.
Gutman. Its shares also likely got a boost from investors fleeing
consumer staple stocks or other retailers, he noted.
The quarter's 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. rose 50% from a year earlier for its fiscal third quarter,
following a 60% rise in the preceding period. The company doesn't
disclose e-commerce sales totals on a quarterly basis. For the
current fiscal year, Wal-Mart expects its global e-commerce sales
to hit $17.5 billion, still a fraction of its nearly half a
trillion dollars in annual revenue.
Marc Lore, Wal-Mart's head of U.S. e-commerce, 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," he said on the conference call with reporters. "We can see
the things we have done are increasing top-line sales."
Amazon is on track to capture about 44% of U.S. online sales
this year, up from 38% last year, according to eMarketer, a
research firm. Wal-Mart is projected to grow to about 3.6% from
2.8% last year, the firm said.
Wal-Mart is focused on cutting costs to improve its profit
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 taken other steps to bolster margins. 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 this
week.
In recent years, Wal-Mart has shifted from its long-running
strategy of building more cavernous supercenters. In 2015 it closed
more than 150 U.S. stores. It plans to build just two dozen stores
next fiscal year. Instead, it has focused on improving existing
stores and investing in e-commerce, including acquiring online
retail startups and adding fulfillment centers. The company has
also raised starting wages for store employees.
The company on Thursday said it was close to settling a
yearslong foreign-bribery probe. Wal-Mart, which has spent $870
million to investigate and upgrade compliance following allegations
of bribery in Mexico and other countries, said it would record a
$283 million charge related to the settlement as talks with U.S.
government agencies have "progressed."
The quarterly rise in same-store sales for Wal-Mart's U.S.
operations was well above the 1.8% growth estimate of analysts
polled by Consensus Metrix. Wal-Mart said the 2.7% rise reflected
in part a 1.5% increase in store traffic, as well as its e-commerce
gains.
Consumer spending in the U.S. has been healthy for most of the
year, buoyed by low inflation that has kept prices in check and
robust employment that has bolstered household budgets. But
traditional retailers haven't necessarily shared in the bounty, as
Americans spend more on cars and entertainment and increasingly
shop online.
Retail industry organizations and consultants have largely
predicted strong holiday sales this year, though an increasing
share is likely to be captured online. "We expect a solid
performance for the important holiday season," said Mr. Biggs,
Wal-Mart's finance chief.
In the fiscal third quarter, Wal-Mart's revenue increased 4.2%
from a year earlier to $123.18 billion. Profit fell to $1.75
billion, or 58 cents a share, from $3.03 billion, or 98 cents a
share, as the company booked charges for paying down debt early,
international property sales and the bribery-probe settlement.
Absent the charges, profit was $1 a share.
Austen Hufford contributed to this article.
Write to Sarah Nassauer at sarah.nassauer@wsj.com
(END) Dow Jones Newswires
November 17, 2017 02:47 ET (07:47 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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