While the growth figures on Walmart’s top line may not be stellar, they nonetheless indicate that the world’s largest retailer is still capable of eking out growth.
They also stand in marked contrast to the more negative figures from rival mass merchant and department store retailers. In short, in a time of change and flux in retail, Walmart is still more than holding its own.
The main negative spot in Walmart sales results comes from international performance where sales declined by 4.8 per cent. However, much of this is down to the stronger dollar which is diluting gains made in local currency; when this is excluded, growth on constant currency terms increased by 2.4 per cent. Admittedly this could be better, especially considering the segment includes high growth geographies like China; however, we are encouraged by the fact that international results are now showing signs of sequential improvement.
The other slight negative appears on the bottom line where operating income fell by 10.4 per cent and net income dipped by 8.2 per cent. This deterioration is not much of a surprise given the increases in wages and the new investments in technology.
Profitability decline is a necessary evil over the short term if it allows Walmart to retain its retail prominence. Indeed, it contrasts with Amazon’s acceptance of lower profits in order to drive growth.
That said, Walmart will need to show that its investments are delivering returns, especially on the eCommerce front. There are some early signs of this in these results, especially the progress made on adding some 8 million SKUs to the online offer. The 20.6 per cent growth in eCommerce sales globally (on a constant currency basis) is positive, and US online growth is now well above the overall market, indicating Walmart is comfortably adding share. However, the figures include half a quarter of sales from recently acquired Jet.com, which flatters the results somewhat.
Nonetheless, Walmart is now on much more positive trajectory in terms of both its eCommerce strategy and results.
Away from eCommerce, the US results more generally are good, even if they do show signs of a slight slowdown since last quarter. Walmart is trending positive in both traffic and average ticket, an indication that it is still pulling in customers in a way that many rivals are struggling to do.
Looking ahead to the holiday period, Walmart has a sound strategy which involves – but goes way beyond – low prices. Initiatives around exclusive merchandise, entertainment in store, and improved customer service align with consumer demand and should serve the company well in its most important quarter. Walmart should end its fiscal year on a positive note.
- Neil Saunders is CEO of retail analyst Conlumino.