WMT Walmart Inc

Retailer lifts market share in key segments, including groceries and toys; online orders rise

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 (February 20, 2019).

Walmart Inc. strengthened its grip on American shoppers over the winter holidays, posting strong sales growth as the world's biggest retailer lured customers from shrinking chains and ramped up its online grocery business.

In the U.S., the company's comparable sales, which exclude gas but include e-commerce sales, rose 4.2% in the January-ended quarter, one of the behemoth's biggest quarterly gains in a decade. Walmart got a boost from strong grocery sales, online orders and holiday purchases including toys. Walmart had expected quarterly U.S. comparable sales to rise at least 3% from a year earlier.

The results -- following mixed economic data and sales updates from other U.S. chains -- were mostly better than Wall Street had expected, and the company reiterated its financial forecasts for fiscal 2020. Shares of Walmart gained 2.2% to $102.20 on Tuesday.

"We experienced a favorable economic environment in the U.S. for much of the year," which helped lift grocery spending, said Walmart Chief Executive Doug McMillon on a conference call. Mr. McMillon said the company gained market share in key categories, including groceries and toys, during the latest quarter.

More than half of Walmart's U.S. revenue comes from food and other staples, and the retailer boasts of a store within 10 miles of 90% of Americans. It has fared better than department stores or mall-based chains that are more heavily reliant on apparel or are unable to make heavy investments to answer Amazon.com Inc. It has also benefited from the unraveling of some big-box chains like Toys "R" Us Inc. and Sears Holdings Corp.

In the latest quarter, the company got a boost when the U.S. government sent February checks to Supplemental Nutrition Assistance Program recipients in January to ensure payment amid the federal government shutdown. The company said the shift added 0.4% to its comparable sales growth.

Quarterly sales were helped by several one-time factors, said Simeon Gutman, retail analyst at Morgan Stanley, including tax reform, SNAP payments in January, and a surge in toy sales after Toys "R" Us closed. However, Walmart's wider product selection online and growth of online grocery services "are clearly resonating with shoppers and Walmart's efforts to capture new customers are working," said Mr. Gutman.

Walmart said e-commerce sales rose 43% in the latest quarter and 40% for the full fiscal year, hitting the company's expectations for a small but key part of its business. The growth has been driven by the expansion of online grocery pickup services to more than 2,100 of Walmart's 4,600 U.S. stores this fiscal year. Walmart also started offering online grocery delivery in about 800 stores.

When customers buy online, and then pick up merchandise in store parking lots, those sales get counted as online sales. Walmart said U.S. e-commerce growth will slow to 35% this fiscal year.

Overall, Walmart reported a quarterly profit of $3.69 billion, or $1.27 a share, for the fourth quarter ended Jan. 31, compared with $2.18 billion a year earlier. Excluding a tax-related charge and other items, Walmart said it had an adjusted profit of $1.41 a share. On that basis, Wall Street was expecting earnings of $1.33 a share.

Total revenue, including the Sam's Club chain and Walmart's overseas business, was $138.79 billion, up 1.9% from a year ago. Excluding currency swings, Walmart said total revenue rose 3.1% to $140.5 billion.

While Walmart reported an increase in visits to its U.S. stores in the January-ended quarter, it posted a much higher jump in the average amount spent. As more grocery sales come through online orders, shoppers tend to spend more per trip, said Walmart's finance chief Brett Biggs in an interview. Inflation also rose modestly, he said.

At the same time, Walmart's profit margin declined, a result of a higher percentage of its sales coming from lower-margin e-commerce orders, rising transportation costs and online investments. Walmart expects e-commerce losses to increase for the current fiscal year, said Mr. Biggs.

Walmart is the first major U.S. retailer to report full fourth-quarter results. In January, some chains including Target Corp. and Costco Wholesale Corp. said they had the strongest holiday sales in years, but others, including Macy's Inc. and Kohl's Corp., reported sluggish growth.

Meanwhile, Amazon reported a record quarterly profit and said revenue rose 20% to $72.38 billion, the smallest quarterly jump since 2015.

Generally, U.S. retailers were buoyed last year by a strong U.S. economy, high employment and rising wages. However, government data released last week showed December sales at stores, restaurants and online fell a seasonally adjusted 1.2% from November, the biggest monthly drop since September 2009.

For its full year, Walmart booked total revenue of $514.41 billion, with about $331.7 billion coming from its namesake stores in the U.S. Another $57.8 billion came from its Sam's Club warehouse chain and about $120.8 billion came from international stores. The company expects its U.S. comparable sales to rise between 2.5% and 3% this year.

Outside the U.S., Walmart has been shifting its focus, selling its retail stores in Brazil and agreeing to merge its U.K. stores with a rival. The company also struck a deal to spend $16 billion to acquire Indian e-commerce company Flipkart, a move that it has warned will weigh on its profits. In the fourth quarter, the retailer reported strong comparable sales gains in Mexico and a decline in China.

The company plans to open fewer than 10 U.S. stores this year and will spend the bulk of its capital investments on remodeling existing locations and on e-commerce efforts. It expects to open more than 300 new stores abroad this year, primarily in Mexico and China.

Since Walmart agreed to buy Flipkart last year, the startup's CEO Binny Bansal has stepped down and the Indian government has changed regulations surrounding how foreign e-commerce companies are allowed to operate. Amazon warned last month those changes could hurt growth in the country.

"The things that have happened have been disappointing in some way, but they haven't shaken our confidence and excitement about what this is going to mean to the company long term" in India, Mr. McMillon said Tuesday. "We hope to have an effective, productive dialogue, as it relates to future changes that happen. But in terms of how the business has behaved, it's in line with what we thought it would be."

Write to Sarah Nassauer at sarah.nassauer@wsj.com

(END) Dow Jones Newswires

February 20, 2019 02:47 ET (07:47 GMT)

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