Walmart’s improving store experience and rebounding online sales helped to power first-quarter results.
The world’s largest retailer reported Thursday that both revenue and profits beat Wall Street estimates. Sales at stores opened at least a year rose a solid 2.1 percent.
It’s an encouraging report from Walmart as it searches for solid footing in a rapidly changing environment that includes a dominant Amazon.com that is encroaching online and in some cases, just down the street.
A mixed picture has emerged for retailers this quarter with economic indicators showing an economy that continues to gain momentum. Unemployment is at a 17-year low and wages are rising, even if stubbornly.
Still, there are headwinds like higher gas prices and other inflationary pressures that could threaten wage growth, says Steve Barr, consumer markets leader at PwC. He also says that the most financially healthy retailers are able to invest in stores and online, while others with less cash can’t.
“There is no question that consumers are consolidating to a few retailer players,” he added.
Macy’s, citing the economic rebound and an aggressive push to revitalize its brand, put up its second consecutive quarter of rising sales at established stores this week. But J.C. Penney, still scarred from a disastrous attempt at its own revival a few years ago, floundered. It cut its outlook for the year Thursday as it trims sending to offset declining revenue. Nordstrom reported better-than-expected profits and total revenue for the first quarter. But its comparable sales were disappointing.
Walmart, while spending more on its workers to improve the in-store experience, is building fewer big stores and expanding online. It wants to harmonize its growing portfolio of online services with its 4,700 U.S. stores, which could be an advantage while taking on Amazon.com
“Competition in retail remains acute on all fronts, and we believe Walmart is well-positioned to thrive against all competitors in this environment,” said Charlie O’Shea, lead retail analyst at Moody’s.
Since buying Jet.com for more than $3 billion nearly two years ago, Walmart has further buttressed its presence online, acquired brands like Bonobos and ModCloth. It has vastly increased the number of goods its sells outside of its stores.
It’s also strengthening delivery to make shopping at Walmart even more attractive. In March, Walmart said it would expand same-day delivery to more than 40 percent of U.S. households, or 100 metro areas by the end of the year.
Walmart is reworking its website with a focus on fashion and home furnishings. The new site also makes it easier for shoppers to see what services are available, such as the ability to order groceries online, and pick them up on the way home. It has also teamed up with Lord & Taylor to create dedicated space on its site, which will be launched in the next few weeks.
Online sales rose 33 percent in the first quarter, a strong showing after a disappointing 23 percent increase in the final quarter of last year. Wall Street punished the company for the end-of-year performance online, sending company shares plunging more than 10 percent. It was the biggest single-day percentage drop for shares in 30 years. Marc Lore, CEO of Walmart’s U.S. online business, told reporters on a call Thursday it’s seeing 10 to 20 percent more growth going to online grocery business.
Still, the pace was below Walmart’s expectations for a 40 percent growth in online sales this fiscal year. And its online business is still a distant second to Amazon.
Amazon.com Inc. has leveraged its Prime membership program into intense loyalty from customers. Amazon recently raised its annual fee for membership to $119, from $99. And after spending $14 billion to acquire Whole Foods last summer, Amazon announced two-hour delivery from the grocery chain for its members.
While it fights off rivals at home, the world’s largest retailer is expanding abroad, concentrating on areas with big growth potential like India and China.
This month, it acquired a controlling stake in Flipkart, India’s largest online retailer. The $16 billion deal is Walmart’s biggest acquisition yet. At the same time, is selling its British unit, Asda, which has been struggling with intense competition from German no-frills discounters Aldi and Lidl.
Walmart posted a first-quarter profit of $2.13 billion on Thursday, or 72 cents per share. Earnings, adjusted for non-recurring costs, were $1.14 per share, which is 2 cents better than industry analysts were expecting, according to a survey by Zacks Investment Research.
That compares with $3.04 billion, or $1 per share, in the year ago quarter.
Walmart’s Chief Financial Officer Brett Biggs acknowledged in the call that the economy is strong, but some shoppers are being squeezed by higher gas prices.
Walmart’s Sam’s Club division had a strong quarter too, with revenue at stores opened at least a year up 3.8 percent.
The Bentonville, Arkansas, company’s revenue rose 4.4 percent to $122.69 billion, beating projections for $120.08 billion.
Shares of Walmart Inc. slipped almost 2 percent to close at $84.49 on Thursday.
Elements of this story were generated by Automated Insights (http://automatedinsights.com/ap) using data from Zacks Investment Research. Access a Zacks stock report on WMT at https://www.zacks.com/ap/WMT
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