Walmart continues sales momentum in third quarter

Walmart posted solid sales gains and topped Wall Street’s high-end earnings forecast for its fiscal 2021 third quarter as it continued to adapt to changing consumer behavior and operational challenges presented by the COVID-19 crisis.

For the quarter ended Oct. 31, Walmart totaled revenue of $134.61 billion, up 5.2% from  $127.99 billion a year earlier. Excluding the impact of foreign exchange, revenue rose 6.1% to $135.8 billion, the company said Tuesday.

At Walmart U.S., third-quarter net sales climbed 6.2% to $88.35 billion from $83.19 billion a year ago. Comparable sales grew 6.3% year over year (6.4% excluding fuel), with the average ticket size up 24% and the number of transactions down 14.2%.

President and CEO Doug McMillon noted that Walmart drove growth despite an “unusual and softer” back-to-school season and less benefit from government stimulus spending versus the first half of the year

“Walmart U.S. had another strong quarter. Comp sales increased 6.4%, and we significantly reduced operating losses in e-commerce,” McMillon told analysts in a conference call on Tuesday. “Consistent with the second quarter, we saw customers consolidate shopping trips with larger baskets and fewer transactions. Comp sales accelerated from the beginning of the quarter, helped by food, consumables, and health and wellness.”

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Walmart U.S. e-commerce sales jumped 79%, with strong results across pickup, delivery and direct-to-home channels.

E-commerce sales at Walmart U.S. surged 79% versus a year ago, with the company  citing strong results across digital channels, and contributed about 570 basis points to comp-sales growth.

“Growth was strong in pickup and delivery as well as direct-to-home, with the highest growth coming from [Walmart] Marketplace,” McMillon said. “We also launched Walmart , and we’re excited to have that important piece of the puzzle in place. We launched it with an initial set of benefits that we know are important to our customers. Over time, we’ll evaluate the program against our broader set of assets with the aim of improving the value proposition and deepening our relationship with customers, including earning a greater share of wallet.”

Pandemic-related supply issues persisted in the third quarter, but Walmart has shown flexibility in leveraging its brick-and-mortar assets and manpower to meet spikes in demand, according to McMillon.

“Our merchant and replenishment teams are working hard to make sure we have products available for our customers, and stock levels have improved from Q2 but were still below where we want to be,” he said in the call. “The team is being flexible when it comes to meeting demand. For example, we’ve turned on nearly 2,500 stores to fulfill online orders. We can quickly flex this number as the holiday season progresses to help relieve pressure on our e-commerce fulfillment centers, if necessary.”

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Sam’s Club turned in net sales of $15.85 billion in the third quarter, up 8.3% from $14.63 billion in the prior-year period. Comp sales rose 7.9% overall and were up 11.1% excluding fuel. Transactions grew 6.8% and the average basket was up 4%, compared with a 5.1% decline in the year-ago quarter. E-commerce sales increased 41% and contributed 230 basis points to the warehouse club chain’s comp-sales growth. Meanwhile, membership income gained 10.4%, and member signups and renewal rates were strong, with renewals for Plus membership up 350 basis points.

“At Sam’s Club, strong comp sales of 15.3% minus fuel and tobacco included a good balance of increased ticket and transactions. Great items drive the club business, and our merchandising offer is compelling. Our strength in fresh food and the uniqueness of Member’s Mark continue to make it special to be a member,” said McMillon.

“Consistent with the growing popularity of a contactless shopping experience, Scan & Go penetration is up more than 600 basis points,” he added, “and curbside delivery has been well-received by members and is growing well above our overall comp sales.”

Overall U.S. comparable sales, including Walmart U.S. and Sam’s Club, were up 6.6% in the third quarter, with the increase at 7.1% without fuel.

Walmart International saw third-quarter net sales edge up 1.3% to $29.55 billion from $29.17 billion a year earlier. In constant currency, net sales rose 5% to $30.62 billion. Walmart noted strong performances by Walmart Canada, Walmart Mexico (Walmex) and Flipkart in India.

At the bottom line, Walmart reported consolidated net income (attributable to the company) of $5.14 billion, or $1.80 per diluted share, for the fiscal 2021 third quarter, compared with $3.29 billion, or $1.15 per diluted share, a year ago. Excluding a loss on the sale of Walmart Argentina and the net impact of unrealized equity investment gains, adjusted net earnings per share were $1.34, well over the top end of Wall Street’s projection.

Analysts, on average had forecast adjusted EPS of $1.18, with estimates ranging from a low of $1.06 to a high of $1.26, according to Refinitiv/Thomson Reuters.

Walmart said there will be no letup in its COVID-19 safety and operational measures, as coronavirus cases continue to mount nationwide.

In a research note on Tuesday, Jefferies analyst Stephanie Wissink said Walmart U.S. and Sam’s Club comp-sales growth exceeded both Jefferies’ and Wall Street’s consensus estimates, while e-commerce sales results were in line with projections, with Walmart U.S. pickup and delivery sales growing by triple digits. She noted that although Walmart U.S. basket growth topped Jefferies’ expectations, the decline in transactions exceed her team’s forecast and grocery comp-sales growth of mid-single digits remained below the industry average.

“With the country re-entering various levels of lockdown, and Walmart having already announced capacity limits, we see a continuation of fewer trips with bigger baskets and a shift to e-com persisting into the fourth quarter,” Wissink wrote.

In the call with analysts, McMillon noted that Walmart’s COVID-19 safety and operational measures will continue. He also called for more cooperation among public officials at all levels and extended congratulations to former Vice President Joe Biden on becoming the president-elect.

“The recent rise in COVID cases throughout the country reminds us we must remain vigilant. As we’ve done since the beginning of the outbreak, we’ll continue being disciplined about the safety protocols throughout our stores, clubs, distribution and fulfillment centers. We’re reinforcing our messaging to customers, members and associates regarding wearing face coverings, social distancing and other safety measures,” McMillon said.

“While the health and safety of our customers, members and associates is our first priority, we realize the increasing cases will put more pressure on small businesses that have been heavily impacted by the pandemic,” he added. “As various governments around the country tighten up to help keep people healthy, it will be imperative that elected officials in Washington work together to deliver the help so many small businesses need to get through this next phase of the pandemic.”

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