Fresh foods and e-commerce boost Walmart's strong earnings
- Walmart's U.S. comparable sales grew 4.5% in the second quarter — the strongest growth in more than 10 years — led by grocery, apparel and seasonal categories. E-commerce sales grew 40%, up from 33% in the previous quarter. Sam's Club comparable sales rose 5%, its strongest growth in six years, the company said in a press release. The positive results caused shares to rise 9.5% in mid-morning trading.
- The company reported its strongest grocery comps in nine years, driven by sales of fresh foods. Walmart revised its fiscal 2019 guidance from a 2% growth in comparable sales across stores to a 3% rise at both Walmart U.S. and Sam's Club stores.
- Doug McMillon, Walmart's CEO, noted the company is continuing to refine its online grocery efforts while expanding to new markets. "Grocery pickup wait times continue to come down and our grocery delivery times are improving," he noted in prepared remarks. "We’re continuing to innovate with trials of self-driving cars in Arizona for our grocery pickup customers and automated picking capabilities for grocery pickup in our store in Salem, New Hampshire."
This was the quarter Walmart needed — and one that CEO Doug McMillon said signifies Walmart is now "moving with more speed."
Riding a wave of increased consumer spending, the retailer saw sales soar across its food and general merchandise categories. Grocery was a particular bright spot, with shoppers spending more on fresh meat, produce and other perishables. These are the sort of offerings Walmart wants to be moving since they offer higher margins and tend to draw customers into stores. The uptick reflects promotional investments Walmart has made in this growing segment.
"Customers continue to gravitate toward our selection of fresh produce, meat, and bakery items that offer great quality at low prices," McMillon said during the company's earnings presentation.
Walmart has made online grocery a key focus, with pickup now available at more than 1,800 stores. The company also said it is on track to reach 40% of the U.S. population with grocery delivery by the end of the year.
Under Marc Lore's e-commerce leadership, digital sales have been a major priority. In the first three quarters of the last fiscal year, digital sales rose 63%, 60% and 50%, sequentially. But fourth-quarter results stalled comparatively, increasing just 23% and spurring a 10% drop in the company's stock price in one day. Ambitious growth projections for 40% growth on the year were further called into question last quarter when the company reported e-commerce sales growth of just 33%.
Analysts were overwhelmingly positive on the results. Neil Saunders, managing director with GlobalData Retail, said Walmart's in-store and digital investments have helped it steal share away from lesser grocery competitors.
"We believe that gains are being made at the expense of other supermarkets, including players like Albertsons which are increasingly losing the battle on price, service and many other fronts," he wrote in a note emailed to Food Dive.
Cowen, meanwhile, believes the company will hit its digital goals and is encouraged that the company is making long-term competitive moves against Amazon. According to the latest Cowen Consumer Tracker, 80.5% of survey respondents visited a Walmart store or its website, compared to 79.9% last year. Visits accelerated for the third consecutive quarter and turned positive for the first time on a year-over-year basis in five quarters. Shopper overlap with Amazon also declined for the first time since Cowen began the survey in 2012. Customer satisfaction improved in the quarter, too, according to Cowen.
Moody's Lead Retail Analyst Charlie O'Shea said it was a "banner quarter" for Walmart by most counts.
"Margins continue to reflect investments in price, people, stores and technology, though decreases were fairly well-contained, and market share continues to grow," he said. "The food business continues as a bright spot, with rapid rollout of in-store pickup well underway, and product delivery expanding as well."
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