Walmart sees bright spot in Canada sales
World’s largest retailer looks to internet, groceries for growth
Walmart shares shed more than 9 per cent in early trading on Tuesday after the company posted disappointing fourthquarter results, but international sales remained a bright spot for the global discount retailer, including sales in Canada.
Total revenue surpassed $500 billion (U.S.) for the first time in the company’s history; however, analysts were disappointed by the retailer’s lower-than-expected profit and slower e-commerce sales in the fourth quarter.
Walmart, based in Bentonville, Ark., earned $2.17 billion, or 73 cents per share, in the three-month period ended Jan. 31.
That rate compares with $3.76 billion, or $1.22 per share, in the year-earlier period.
Excluding charges, Walmart earned $1.33 per share. Analysts surveyed by Zacks Investment Research were calling for earnings of $1.36 per share.
Still, same-store-sales in the U.S. grew 2.6 per cent, led by traffic growth of 1.6 per cent.
Operations in Mexico fared better, with an increase in same-store-sales of 6.1 per cent.
In Canada, net sales increased 3.4 per cent, led by a same-store-sales increase of 2.9 per cent.
“In Canada, customers have responded well to strategic investments we’ve made in price and this is contributing to market share gains in key traffic driving categories like food, consumables and health and wellness,” said Doug McMillon, Walmart Inc. president and chief executive officer.
Walmart said it will continue to roll out its online grocery pickup service in Canada, and later this year it will expand its mobile scan-and-go technology.
Retail consultant Bruce Winder, co-founder and partner, Retail Advisors Network, said that Walmart in Canada has benefitted from the closure of Zellers, the collapse of Target and the exit of Sears Canada from the retail scene.
“If you look at the competitive intensity in Canada, we just don’t have as many players here, so it’s easier for them to grow,” said Winder.
Winder pointed to the January labour force survey from Statistics Canada as one reason why he expects Walmart Canada to continue doing well this year. The survey revealed that employment fell by 88,000 in the month, following two months of increases.
“Although many people think our economy is roaring, I would beg to differ — there are still a lot of people having a hard time making ends meet,” said Winder.
“And if you need to do that, Walmart is a good place to go to save money, so they’re in vogue still.”
Winder said Walmart is also benefitting from adding groceries to stores, which draws weekly shoppers who also stock up on higher-margin items.
“They don’t make a lot of money in grocery, but they make a ton of money in apparel, they make a ton of money in footwear, they make some money in sporting goods and leisure items. They make a lot of money in seasonal items, like Christmas and Halloween. So it’s part of their strategy to win Canada that way.”
Huge investments being made in its digital business and stores are eating into profits as Walmart struggles to compete with Amazon, which does not have the same burden of fixed costs.
Since buying Jet.com for more than $3 billion a year and a half ago, Walmart has added online services, acquired brands such as Bonobos and ModCloth and vastly expanded the number of items available online.
Walmart is also getting ready to launch an overhauled website with a focus on fashion and home furnishings.
It has teamed up with Lord & Taylor to create dedicated space on its site.
E-commerce sales growth in Walmart’s U.S. business slowed to 23 per cent during the fourth quarter, from 50 per cent in the third quarter. Walmart blamed the bulk of the slowdown on the company’s lapping its acquisition of online retailer Jet.com a year earlier. It also acknowledged some e-commerce operational issues.
“Overall, we believe that F4Q18 suffered from e-commerce ‘growing pains,’ but we expect a smooth landing in FY19 — although the components of how the plan lands will remain fluid,” wrote analyst Karen Short at Barclays in a note to investors.
Oliver Chen at Cowen equity research pointed out that prior to Tuesday, the stock had run up 40 per cent in 12 months. He called the decline in share price a buying opportunity.
The future of e-commerce is a combination of physical and digital, which puts Walmart, with 4,750 stores in the U.S. and a grocery supply chain, in a position to prosper, according to Chen.
The world’s largest retailer posted revenue of $136.27 billion, exceeding the average analyst estimate of $135.04 billion.