Walmart officially beat sales expectations in its second quarter last week. Do these figures fly in the face of a market that was expecting a comp decline?
Walmart beat sales expectations in its second-quarter results last week. Comps at both Walmart US and Sam’s Club were flat.
Do these figures fly in the face of a market that was expecting a comp decline - especially when you also factor in that overall group revenue beat consensus forecasts and EPS was in line with expectations?
Only to a limited degree. Flat comps in the 13 weeks to August 1 meant that Walmart was spared the ignominy of six consecutive quarters of decline in underlying performance.
But turning this on its head, the fact that the world’s largest retailer didn’t report any underlying growth in its second quarter is hardly a cause for celebration.
Traffic remains the main issue.
It was down again in the second quarter (by 1.1%), counterbalanced only by a similar increase in average ticket.
If there was a more tangible positive in the comp detail, it was the performance of Neighborhood Market, which achieved very respectable growth of 5.6% (on the back of traffic gains of 4.1%).
Including the contribution of new space, overall sales at Walmart US were ahead 2.7% to $70.6bn (£42.2bn) and Sam’s Club was ahead 2.3% to $14.9bn (£8.9bn).
However, operating income at Walmart US was down by a disappointing 2.4% to $5.25bn (£3.1bn), and Sam’s Club slipped 4.6% to $500m (£299m). Worse still, the business trimmed its full-year earnings guidance because of “incremental investments in ecommerce and headwinds from higher healthcare costs in the US than previously estimated”.
That ecommerce investment was weighing heavily on the bottom line took some of the gloss off the marquee figure in the release, namely that Walmart’s global ecommerce business grew 24% in the quarter. A high-growth but cost-intensive undertaking, and a necessary evil.
But the operating income trend at Walmart International contrasted starkly with that of the domestic business. Overseas operating income increased 8% to $1.49bn (£890m), with the positive growth reported in the first quarter accelerating rather than receding.
On a corporate level, the major news over the last quarter was undoubtedly the appointment of Greg Foran to head up Walmart US. In many respects, this is the quiet dawning of a new age at Walmart. Expect change, albeit far more evolutionary than revolutionary. The investment is certainly being put in place.
- Stephen Springham is senior retail analyst at Planet Retail