Gains in perishables, e-commerce boost Walmart’s Q3

Wal-Mart Stores’ U.S. division posted strong gains in grocery sales and e-commerce in the third quarter, leading the company to increase its outlook for profits for the full year.

The Bentonville, Ark.-based company on Thursday said that its food categories “delivered the strongest quarterly comp sales performance in almost six years,” with gains in the low single digits. Grocery categories helped drive 2.7% U.S. comparable-store sales overall at the company, including a 1.5% increase in comp-store traffic and 1.2% increase in basket size.

Doug McMillon, president and CEO, cited fresh meat, bakery and produce in particular as “leading the way,” although the company said sales, traffic and unit volume grew across all categories.

In a follow-up conference call with analysts, company executives said improved presentations and assortments and sharp pricing helped drive the grocery sales gains.

“The customers have really responded to areas we've spent a lot of focus on, particularly fresh categories, and that business has really sequentially improved,” said Kary Brunner, director of investor relations. “Price points are right. There's a good assortment. The presentation within the stores is really, really good. And then top that off with online grocery.”

Walmart also said its U.S. comps received a boost of 30 to 50 basis points from the hurricanes that hit the Southern U.S. during the quarter. In addition, the company said food inflation was “in a similar range or below” the 30 basis points the company reported in the second quarter.

Gross margins as a percent of sales in the U.S. were down 36 basis points in the quarter, due to pricing, the impact of the hurricanes — which accounted for about a third of the decline — and the impact of the growing e-commerce business.

“Walmart continues to invest in price, which is exactly what is needed to maintain dominance,” said Karen Short, an analyst at Barclays Capital, in a research note.

E-commerce sales up 50%

Overall e-commerce sales grew 50% at Walmart in the quarter, mostly through Walmart.com, and contributed 80 basis points to the comp-store sales growth.

The company said it remains pleased with its click-and-collect grocery service, which is now offered in 1,100 locations and is expanding to 1,000 additional locations next year.

“It’s working. Our customers love it,” said Steve Schmitt, VP of investor relations.

The company continues to push customers toward omnichannel shopping, as customers who shop via multiple channels spend more than those who shop in only one channel, he said.

Walmart is continuing to “watch and learn” from its previously announced test of using store employees to deliver orders to customers, Schmitt said. Walmart also recently acquired same-day/next-day delivery service Parcel, which will allow fast delivery in New York and other metropolitan markets.

Gains at Sam’s Club

Walmart’s Sam’s Club division reported comparable-store sales gains of 2.8%, excluding fuel, as the banner sharpens its focus on serving higher income families. Perishables and private labels are helping drive growth at the warehouse-hub banner, executives said.

“Fresh categories including meat, produce and bakery all performed well,” said Brett Biggs, EVP and CFO. “This is an important traffic driver for our clubs.”

Fresh, refrigerated and frozen foods had comps in the mid-single digits in the third quarter, the company said, while grocery and beverage categories were up in the low single digits.

In addition, the company has expanded the Member’s Mark private label across multiple categories, and is increasingly using the brand to highlight value on exclusive items.

Overall Walmart said operating income in constant currency was down 8.1% for the quarter, to $4.7 billion, while revenues rose 3.8% on a constant-current basis and 4.2% on an actual basis, to $123.2 billion, compared with year-ago results.

The company raised its profit outlook for the year to a range of $4.38 to $4.46 per share, up from previous guidance of $4.30 to $4.40 per share.

“We expect a solid performance for the important holiday season,” said Biggs.

CORRECTION, Nov. 17, 2017: The Sam’s Club comparable-store sales gains figure has been corrected to 2.8%.