Walmart offers holiday cheer as traditional peers struggle
Walmart is offering some holiday cheer heading into the crucial Christmas shopping season even as many of its traditional peers struggle.
The nation’s largest retailer raised its annual profit expectations on Thursday after reporting strong third-quarter results helped by its grocery business.
The results offer the latest evidence that Walmart’s efforts to expand online grocery services are widening the gap between itself and traditional rivals. At the same time, it’s holding its own against Amazon despite the online leader’s increasing dominance.
Walmart, based in Bentonville, Arkansas, is also benefiting from overall healthy consumer spending and a strong economy.
Walmart is the first major retailer to report third-quarter results and underscores how retailers that offer low prices and convenient shopping options are holding strong with consumers. Target, T.J. Maxx’s parent and Best Buy are among the winners expected to report solid results as well. But many department store chains and mall-based clothing chains are still struggling to respond to shoppers’ increasing shift to online.
Walmart said that sales at stores opened at least a year rose 3.2%, marking the 21st straight quarter of gains. U.S. online sales rose 41% helped by its expansion of grocery delivery service. Walmart now has more than 3,000 locations for grocery pickup and more than 1,400 locations that offer grocery delivery. This fall, it launched “Delivery Unlimited,” which costs $98 annually and $12.95 monthly for unlimited grocery delivery. It also launched a delivery service in three cities, giving customers the option to let its own delivery person put purchases directly into the refrigerator when they’re not home.
Still, delivery wars are expected to be intensified this holiday season.
Walmart and Amazon are locked in an arms race to bring packages faster and faster to customers’ homes. Amazon offers a similar in-home service in certain cities, dropping off packages inside homes, garages or trunks. But its service doesn’t deliver groceries. And both will be fighting it out with a new offering — next-day delivery services. Walmart has rolled out next-day delivery on its most popular items. Amazon has said that more than 10 million items now qualify for next-day delivery for Prime members who pay $119 a year. But Walmart may have to reconsider its new unlimited grocery delivery service — late last month, Amazon dropped its $15 monthly fee for its Amazon Fresh service, which delivers raw meat, vegetables and other groceries to customers’ doorsteps. The service is only for its Prime members.
Walmart has a lot of work to do to better compete with Amazon. Its online U.S. sales reached $15.7 billion in the latest fiscal year. That’s still a fraction of Amazon’s online global merchandise empire, which reached $122.98 billion last year. Walmart has even acknowledged that it needs to improve its general merchandise offerings online, which carries higher profit margins than food.
“Our strength is being driven by food, which is good but we need even more progress on Walmart.com with general merchandise,” said Doug McMillon, Walmart’s CEO in a transcript of a prerecorded call following the earnings results.
That acknowledgement comes as Walmart’s strategy of binge buying niche online brands has faltered. Last month, Walmart sold ModCloth, an online native women’s clothing brand after buying it two years ago. During a media call on Thursday, Marc Lore, head of Walmart’s U.S. online division, said the company is moving away from acquisitions to building its own brands, citing the success of Allwell, an online mattress brand aimed at affluent customers.
As a result of the continuing extra investments in online delivery, Walmart said that operating income declined 5.4% to $4.72 billion during the fiscal third quarter.
Still, overall results were solid. It posted net income of $3.29 billion, or $1.15 per share, for the fiscal third quarter. Per-share earnings were $1.16 when adjusted, easily topping Wall Street projections of $1.09, according to a survey by Zacks Investment Research.
Revenue rose to $127.99 billion in the period.
Walmart Inc. said that it now expects adjusted earnings per share for the current fiscal year to increase “slightly,” including Flipkart, and to increase in the high single percentage range when excluding it. It had previously said its adjusted earnings per share would decrease slightly. Last year, Walmart bought a 77% stake in Flipkart, India’s leading online retailer.
Shares were up more than 2%, or $2.53, to $123.58 in morning trading.
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