WMT Walmart Inc

By Sarah Nassauer and Austen Hufford 

Walmart Inc. is feeling the squeeze from Amazon.com Inc.

The world's biggest retailer reported strong holiday sales Tuesday but said online sales growth slowed during the quarter, marking a turn from three quarters of booming online growth, and that its profit margin came under fresh pressure.

The retailer said lower prices during the quarter and continued online sales growth -- generally less profitable sales -- hit margins. Some operational snags ate into ecommerce growth.

Overall, Walmart reported sales in existing stores rose 2.6% in the latest quarter, the 14th consecutive quarter of growth. In part Walmart benefited from a strong economy that also boosted holiday sales at other retailers this year, while improvements to fresh produce and stronger sales across a broad category of merchandise, also helped, the company said.

Ecommerce growth grew 24% this quarter, down from over 50% the previous three quarters. The majority of the slowdown was expected as its sales from Jet, the online store it bought in September 2016, contributed less to growth, said company executives on a conference call.

But as holiday goods like TVs and toys flooded ecommerce warehouses, those products squeezed room for everyday items, leading to some out-of-stocks online, hurting online sales, Chief Executive Doug Mr. McMillon said on the call. "Our in-stock for basic items suffered as a result."

Shares fell 8.6% to $95.77 in morning trading, setting the company to lose about $27 billion in market capitalization if the losses hold Tuesday.

"Walmart continued to generate increased traction on multiple fronts in the U.S.," said Moody's retail analyst Charlie O'Shea. But margins are under pressure because of "the ongoing price-driven market share battle with Amazon."

Many retailers are rapidly consolidating or buying smaller online players to compete as more shoppers head online.

On Tuesday Albertsons Cos. said it plans to buy the rest of Rite Aid Corp. that isn't already being sold to Walgreens Boots Alliance Inc. The chief executives of the companies said in interviews Monday that the merger is the best way for them to compete in businesses increasingly threatened by Amazon, along with an emboldened Walmart.

Walmart has drastically shifted how it spends, moving away from building more cavernous supercenters, instead improving existing stores and investing in ecommerce. That shift has included store closures, job cuts and a tighter control on everyday expenses as Walmart invests in faster home delivery, ecommerce acquisitions and partnerships with international online retailers.

Ecommerce sales at Walmart U.S. grew quickly in the wake of the acquisition of Jet.com Inc. Jet founder Marc Lore took over Walmart's ecommerce operations, adding features like free 2-day shipping on more items, expanding online selection and buying a string of smaller online retailers. Walmart, the country's largest grocer, also has added hundreds of online grocery pickup locations at stores, which are counted in the e-commerce figures.

Walmart is cutting marketing spending at Jet, which it bought for $3.3 billion, to focus on acquiring new customers for its main website. Sales will temporarily slow, said Mr. McMillon as the site continues to focus on higher-income, urban shoppers. Jet President Liza Landsman is leaving the company this spring to work for venture-capital firm New Enterprise Associates, said the firm earlier this month.

Walmart is also spending to retain workers in a tight labor market. Last month, Walmart said it would raise starting wages for store workers to $11 an hour, add parental leave benefits and hand out a one-time bonus to many hourly workers. The wage and bonus payments would cost around $700 million up front, the company said. Analysts estimate the additional parental leave benefits would cost around $100 million.

Walmart has promised to rein in costs and has made a string of job cuts in stores and corporate offices in recent years. It closed 10% of U.S. Sam's Club locations earlier this year and has slowed Walmart store openings to focus spending on e-commerce growth.

On an adjusted basis, the company brought in $1.33 a share during the fourth quarter, below the $1.37 expected by analysts polled by Thomson Reuters.

Walmart said the closure of 63 Sam's Clubs during the quarter, discontinuing other real-estate projects and other activities related to the new tax code reduced the earnings per share figure by $0.60. The company also said the new U.S. tax law added to earnings by $207 million in its latest quarter, though that amount could shift as the company completes its analysis.

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

(END) Dow Jones Newswires

February 20, 2018 10:14 ET (15:14 GMT)

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