Walmart’s big quarter allays retail concerns
Discount chain enjoys its best holiday season in at least 10 years in face of overall industry’s lackluster quarter
Walmart finally gave the U.S. retail sector some good news.
The company brushed off the industry’s disappointing December sales with its best holiday quarter in at least a decade, soothing concerns about the sector’s outlook for 2019. Comparable sales for Walmart stores in the U.S. — a key performance barometer — rose 4.2 percent in the quarter that included Christmas, beating analysts’ estimates by a full percentage point.
The strong fourth-quarter results from the world’s biggest retailer is a welcome change for a consumer sector after a bout of disappointing results. Although investors entered the holidays expecting a surge of spending, some big retailers warned sales weakened in mid-December after retailers began Black Friday promotions earlier than normal.
Commerce Department figures released last week showed U.S. retail sales fell 1.2 percent in December from the previous month, the most since 2009 — such a big drop that some analysts questioned if the data was undercounting online sales.
The shares had climbed 7.3 percent this year
through Friday’s close, compared with the 11 percent gain in the benchmark S&P 500 Index.
Walmart, like rivals, made a big push to grab former Toys “R” Us shoppers during the holiday season, boosting its toy assortment by 40 percent online and holding thousands of in-store events where kids could test out items. The gambit worked, as toys helped fuel the sales beat, Chief Financial Officer Brett Biggs said in a Tuesday morning interview.
“There was extra share
in the toy market and we went after it,” Biggs said. Events featuring Ryan’s World, a line of toys from a YouTube toy reviewer, were especially big, he said. He declined to provide a sales figure for toys but said general merchandise sales — which also include home decor, apparel and electronics — rose by a mid-single-digit percentage in the quarter.
Walmart’s e-commerce sales in the U.S. rose 43 percent, in line with forecasts, helped by a broader assortment of brands and increased online grocery sales. This was the first holiday season for Walmart’s redesigned website, plus its expanded home delivery and curbside
pickup options.
Still, there were some potentially worrying signs in the report. Higher prices — more than increased foot traffic — drove the sales gains. Plus some of the gains in the quarter were more related to timing: The early release of government food-stamp payments that were supposed to have become available to American shoppers in February boosted U.S. same-store sales by 0.4 percentage points in the quarter, the company said.
Walmart’s profit margins also contracted slightly in the quarter, as transportation and labor costs weighed on the retailer. The continued expansion
of e-commerce also hurts Walmart’s profitability, as online sales typically deliver lower margins than in-store sales due to fulfillment costs.
The company reiterated the full-year sales and profit guidance it gave in October, including samestore sales growth at U.S. Walmart stores of between 2.5 and 3 percent — a slight slowdown from the fiscal year that just ended. Retailers are bracing for a pullback in consumer demand this year, especially if the U.S. follows through on its threat to more than double tariffs on many Chinese goods, forcing retailers to raise some prices in response.