By Neil Saunders
Walmart is still moving full steam ahead in advancing its sales. The 4.1% growth in overall revenue is impressive, especially in cash terms, as it means Walmart added $5.3 billion to its top line.
Walmart increased its share of shoppers due to low prices plus better customer service, improved ranges, and better-selling environments.
The downside to the numbers comes from the bottom line, where net income slumped by just over 42%. However, we are not overly concerned by this, because Walmart remains comfortably profitable and because much of the deterioration is down to the various investments Walmart is making in future-proofing its business. We applaud this long-term view, especially as it is now being coupled with some rationalization and streamlining initiatives.
Low prices, better customer service
On a divisional basis, the U.S. continues to lead the way. Here, Walmart delivered a 3.4% uplift in total sales, underpinned by a solid 2.6% rise in comparables. While this is a slightly softer outcome than last quarter, Walmart is now lapping some tougher prior-year comparatives, which have taken the edge off growth.
The U.S. increases are a function of both higher customer traffic and higher average spend. Part of this is due to a more optimistic and carefree consumer, who was in a mood to spend over the holidays.
Arguably, those shoppers did not have to visit Walmart — but many did, and based on data, Walmart increased its share of shoppers over the final quarter. This is due to Walmart’s focus on low prices plus better customer service, improved ranges, and better-selling environments. Even in an era of stiff competition, Walmart is becoming more relevant to the American consumer.
International sales gain strength
Away from stores, the e-commerce division delivered another good performance, with sales up by 23%. Growth slowed from the 50% increase posted last quarter, but much of this is due to the acquisition of Jet.com annualized over the period. In spite of some operational issues, which also eroded growth, a 23% uplift demonstrates that Walmart still has momentum in e-commerce — a contention supported by the company’s forecast of 40% growth in the upcoming quarter.
Walmart has more work to do to widen its e-commerce customer base. There are many demographics, especially younger and professional segments, for whom Walmart is not the destination of choice online. This isn’t because it doesn’t sell what they want or because the price or delivery options are suboptimal; instead, it is because they do not associate Walmart with online or they default to Amazon. This is a tough nut for Walmart to crack, and one that it can only break by more heavily marketing its services and proposition.
Away from the U.S., the contribution of international continues to strengthen. The division’s sales were up 6.7% on a total basis, with some better — although still not great — results from the U.K.’s Asda. However, it is also clear that a raft of investment activity overseas, as well as a need to bolster low prices, has taken its toll on the bottom line, where operating income fell by 16.1% on a constant currency basis.
Overall, we remain optimistic about Walmart. Investors will bemoan the bottom-line numbers. However, Walmart needs to invest in evolving and adapting. If it doesn’t, it will become irrelevant. In so doing, it is following the same strategy as Amazon: taking less profit today, for the prospect of a stronger, better business tomorrow.
Neil Saunders is managing director of GlobalData Retail.