Walmart Stores Inc. (WMT.N) reported improvements in earnings per share (EPS), revenue and same store sales (SSS), coping with a weak retail market that has been big trouble for traditional department stores.
Online selling, particularly by Amazon, is giving brick-and-mortar chains problems, but Walmart is fighting back.
WMT showed a clear acceleration in three important metrics this quarter:
1) Same Store Sales in the U.S. have shown seven straight quarters of positive comps. The jump to a gain of 1.0% in Q1 2016 is an improvement over 0.6% in Q4 2015, as seen in exhibit 1 below.
Source: I/B/E/S data
2) Earnings Per Share (YoY%) improved to -4.9% Q1 2016 from -7.5% in Q4 2015.
Source: I/B/E/S data
3) Revenue (YoY%) was back in positive territory, gaining 0.9% in Q1 2016 from -1.4% in Q4 2015.
Source: I/B/E/S data
Online presence
Other retailers have been investing big money in their digital, e-commerce presence. However, WMT took it a step further by taking aggressive action against Amazon Prime and testing a two-day shipping subscription. Analysts polled by Thomson Reuters see this as a bright step for WMT as it is expanding its online presence, which might appeal to shoppers it hasn’t already tapped.
Because of WMT’s immense size, it’s harder for it to compete and make quick necessary changes in a fast-changing consumer environment. WMT has more than 10 million SKUs on its site.
On their earnings call, CEO Doug McMillon said that globally on a constant currency basis, e-commerce sales and GMV [gross merchandise value] grew 7% and 7.5% respectively. Growth here is too slow. The U.S. number is better than the global number but neither is as high as the company would like. “We can see progress against several of the necessary capabilities we need to win in e-commerce but we are still working on a few others. We need them all to come together to see stronger growth,” he said.
The GMV number is a decline from the 8% growth in the previous quarter. However: 62% of WMT revenue comes from U.S. (the strongest market).
Executives on the earnings call noted that having fulfillment centers in key location is key to Amazon Prime’s success, and will be for WMT to compete with two day shipping and keeping the shipping cost low.
Walmart’s grocery pickup service in the U.S. continues to receive high marks from customers and the company intends to expand it. This is key, because Amazon Prime is not the leader when it comes to grocery sales. More than 50% of WMT’s revenue comes from groceries.
Another point of strength — even as e-commerce investments continued, WMT’s ability to leverage expenses led to growth in operating income that outpaced sales growth. This means WMT is doing a good job managing costs as opposed to other retailers that sacrificed earnings to significant e-commerce expenses.
