Robust U.S. spending yields jump in Wal-Mart’s holiday sales

Walmart Inc posted its strongest holiday quarter in at least a decade on Tuesday, boosted by higher grocery and e-commerce sales, and said it saw no signs of weakness in U.S. consumer spending despite recent signs of a slowdown.

Shares of the world’s largest retailer rose more than three per cent on Tuesday in a broadly flat market, putting them up seven per cent so far this year.

Walmart and rival Target Corp’s unexpectedly strong growth in holiday sales reflected the health of the U.S. consumer as spending remained robust due to a strong labour market and cheaper gasoline prices.

“We still feel pretty good about the consumer. We haven’t seen much of a change,” said Walmart chief financial officer Brett Biggs. “The data we are seeing still looks pretty healthy. Gas prices are down year over year, which helps.”

Investors and Wall Street analysts have been expecting U.S. spending to slow this year, against a backdrop of rising debt, trade tariffs and economic uncertainty. Walmart’s results settled nerves, but some doubts remain.

“There are definitely some storm clouds on the horizon,” said Charles Sizemore, founder of Sizemore Capital Management LLC, which owns Walmart shares. U.S. retail sales recorded their steepest drop in more than nine years in December, the government reported last week, suggesting a sharp slowdown in economic activity at the end of 2018.

However, overall sales for the 2018 U.S. holiday shopping season hit a six-year high as shoppers were encouraged by early discounts, according to a Mastercard report in late December.

Walmart sales at U.S. stores open at least a year rose 4.2 per cent, excluding fuel, in the fourth quarter ended Jan. 31. The gain exceeded analysts’ expectations of 2.96 per cent, according to IBES data from Refinitiv.

Sales were boosted by federal officials distributing food stamp aid early during the partial government shutdown. The demise of retailer Toys “R” Us also elped Walmart gain toy market share, the company said.

Adjusted earnings per share increased to US$1.41 per share, beating expectations of US$1.33 per share, according to Refinitiv. But the retailer’s gross margins declined for the seventh consecutive quarter due to higher transportation costs and e-commerce investments.

Online sales jumped 43 per cent in the quarter, in line with the previous quarter’s rise, helped by the expansion of Walmart’s online grocery pickup and delivery services and a broader assortment on its website. ut the company reiterated that it expected e-commerce losses to increase this year due to ongoing investments.