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 (May 20, 2020).
Walmart Inc. is reaping the rewards of being one of few
retailers positioned to successfully navigate a global pandemic,
reporting a surge in quarterly sales as consumers turned to its
giant stores to stock up on food and household goods.
The country's largest retailer said U.S. comparable sales, those
from stores and digital channels operating for at least 12 months,
rose 10% in the quarter ended May 1. It was a period when the new
coronavirus upended consumer buying habits, forced many competitors
to temporarily close and led more than 30 million Americans to file
for unemployment.
Walmart's U.S. foot traffic fell in the quarter, but spending
per transaction rose 16.5%. Walmart sales got a boost in April when
shoppers spent government stimulus money, the company said.
E-commerce sales jumped 74% as millions of customers switched to
ordering online for home delivery or picking up groceries in the
company's parking lots.
The company said it absorbed about $900 million in additional
costs related to Covid-19, including raising wages for warehouse
workers and paying bonuses to its store staff. It also hired
235,000 new hourly workers to help it staff stores. However,
Walmart still reported a higher operating profit for the
period.
Overall, Walmart's global revenue rose 8.6% to $134.62 billion
and net income rose 4% to $4 billion. Excluding gains on its
investment in China's JD.com, earnings per share were $1.18,
slightly better than Wall Street was expecting.
Shares rose 1% to $128.95 in early Tuesday trading. The stock
has gained nearly 30% from a year ago and is hovering near a record
of $132.33 reached last month.
Executives said the company was withdrawing its financial
forecasts for the rest of its fiscal year, citing the uncertainty
and restrictions caused by the virus. However, they said the
company was well positioned to operate through the crisis and
Walmart has benefited from bricks-and-mortar closures and slowing
shipping speeds at some online players.
"It is a big advantage being an omnichannel retailer and I think
that is showing right now. We had backups in our fulfillment
centers too" but were able to quickly use stores to fill online
orders, Walmart finance chief Brett Biggs said in an interview.
"That is something that our competitors, they can't all do it."
Walmart said the number of new customers trying its online
grocery pickup and delivery services grew fourfold since mid-March.
Some of those shoppers will go back to old habits, Mr. Biggs said
but "I think this time people are going to remember who was really
there for them."
The coronavirus has forced many retailers to lay off staff and
pushed some, already struggling with the shift to online buying and
competition from Amazon.com Inc., over the edge. This month luxury
retailer Neiman Marcus Group Inc., apparel seller J.Crew Group Inc.
and J.C. Penney Co. have filed for bankruptcy protection.
Walmart has stayed open. The country's largest seller of
groceries, which account for more than half of its U.S. sales, has
benefited as shoppers purchase ground beef, toilet paper and
cleaning supplies at its more than 4,700 U.S. stores. It has also
struggled to keep up with the unprecedented demand. Inventory fell
6.1% in the quarter due to out-of-stock goods, Walmart said.
It isn't just Charmin toilet paper or Clorox wipes that are hard
to find. With millions of people working from home, items such as
office chairs and laptops have been cleaned out in some areas, said
Chief Executive Doug McMillon.
"We are working intensely to improve in-stocks for high demand
items and adjust order volumes," Mr. McMillon said. "We expect the
environment to stay quite volatile in the coming months."
While overall consumer spending dropped sharply in March and
April, the dollars flowed to those companies that sold groceries or
were able to stay open, including Amazon and big chains such as
Target Corp. and Costco Wholesale Corp.
On Tuesday, Kohl's Corp. posted a $541 million quarterly loss
and 41% drop in revenue after it was forced to close its department
stores. Meanwhile, Home Depot Inc. said its comparable sales rose
6.4% in the quarter but profit fell due to higher costs.
Like other open chains, Walmart said its U.S. sales spiked in
March, then slowed during the first half of April. Sales of food
and health-care products rose strongly, while sales of
discretionary goods such as clothes didn't, the company said,
mirroring trends seen across retail as buying habits shifted
dramatically.
Longer-term "online sales will be higher, scale players will
matter even more and Walmart by default will have a bigger share
when this is done," said Simeon Gutman, retail analyst at Morgan
Stanley. "The question is what happens to the margins."
The rapid growth in online sales in recent months "has stressed
supply chains and it's definitely a lower margin way of doing
business," said Mr. Gutman.
Strong sales helped offset additional expenses related to
coronavirus, including a shift to lower-margin online sales and
temporary closures of optical and auto care areas, Walmart said.
The company cut expenses by spending less on company travel,
consultant fees and marketing.
Walmart invested more to operate, including more to disinfect
stores, dole out bonuses and higher pay to store and warehouse
workers and rushed to hire additional workers since mid-March. As
of last month, around 10% of Walmart's staff or 150,000 workers
were on coronavirus-related leave, The Wall Street Journal
reported.
The company, which has been checking staff temperatures before
their shifts and giving them masks and gloves to wear, is looking
at ways to start testing staff for coronavirus. "We are pursuing
strategies for testing associates for the virus, including antibody
testing," Mr. McMillon said.
Walmart has shifted its e-commerce strategy over the past year,
cutting costs at several small websites it acquired in recent years
to focus on building up walmart.com. It sold apparel seller
ModCloth and cut jobs at Bonobos, another apparel brand, and
Hayneedle, an online furniture seller.
On Tuesday, Walmart said it would close Jet.com, the e-commerce
startup it bought for $3.3 billion in 2016. Initially, the deal was
described as a way to challenge Amazon, but over time Walmart pared
back Jet's staff and ambition. The deal put Jet.com founder Marc
Lore at the head of Walmart's U.S. e-commerce businesses. Mr. Lore
has stock incentives to stay with the company through fall of
2021.
Instead, Walmart has focused on adding third-party sellers to
walmart.com, delivering online orders from stores and adding online
grocery service to many stores. During the quarter Walmart started
temporarily using about 2,500 stores to ship out online orders,
said Mr. McMillon.
Write to Sarah Nassauer at sarah.nassauer@wsj.com
(END) Dow Jones Newswires
May 20, 2020 02:47 ET (06:47 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.
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