by John BIERS
© Agence France-Presse
NEW YORK, United States (AFP)–Walmart shares surged Thursday after it reported the strongest US comparable sales in more than a decade as e-commerce investments paid off in a strengthening American economy.
The world’s biggest retailer said rising online sales, and investments aimed at keeping prices low, boosted store traffic at its namesake US business, the most critical unit for earnings.
Comparable US store sales rose 4.5 percent in the second quarter, the best growth in more than 10 years and a key component in a 3.8 percent rise in overall revenues to $128.0 billion compared with the year-ago period.
Briefing.com praised the gains as “extremely impressive coming off such a large base,” but said it was “not too surprising given the strength of the US consumer.”
Despite the revenue gains, Walmart reported an $861 million loss following pre-tax costs of $4.8 billion on a majority stake in its Brazil business. The company also had lower profit margins compared with the year-ago period, as it didn’t pass on the hit from higher costs for shipping goods.
Shares leaped 9.7 percent $98.96 in mid-morning trading, giving a major boost to the Dow.
The company, competing hard for customers with Amazon and other e-commerce companies, has been adding features like grocery pickup at US stores, now offered at more than 1,800 locations or nearly 40 percent of the overall US network.
Other investments have gone into upgrading Walmart’s smartphone applications to speed shopping of school supplies and other items, and pickup towers that allow customers to order goods from the app and retrieve them at automated in-store contraptions.
– Still work to do –
E-commerce sales at Walmart’s US business rose 40 percent in the quarter, a solid figure for Chief Executive Doug McMillon, whose heavy e-commerce investments have at times worried Wall Street analysts.
McMillon said the sales jump reflected sound execution of the strategy, but he also attributed the gains to strength in the economy and seasonal factors, such as higher sales for air conditioners due to warm weather.
“Customers tell us they feel better about the current health of the US economy as well as their personal finances. They’re more confident about their employment opportunities,” he said.
“No doubt we were aided by tail winds during the second quarter.”
McMillon touted some new e-commerce offerings and features at namesake stores and at its Jet subsidiary, but said there was still work to do to find products with higher profit margins.
Makers of everyday staples like toilet paper, household paint and appliances have announced plans to increase prices due to rising commodity prices, and in some cases due to tariffs. But Walmart executives signaled they expect to remain competitive on price.
“There really wasn’t any meaningful inflation and that’s because we’re working really hard to keep prices down,” Walmart US chief executive Greg Foran told reporters on a conference call. “We continue to invest in price.”
Neil Saunders, managing director of GlobalData Retail said Walmart’s decline in operating profit was “concerning,” but a “necessary evil.”
Operating income fell 3.7 percent from the year-ago period.
“Maintaining a price leadership position as well as ensuring the company is an omnichannel leader are clear priorities that require investment,” Saunders said. “These investments are being made and they are delivering growth.”
Sales also rose in Walmart’s Sam’s Club wholesale business and in its international business, which has been a focal point of recent big-ticket transactions.
The company won regulatory approval in India for a purchase of a majority stake in online company Flipkart, and is working through regulatory approval in Britain to combine its Asda and J Sainsbury.
The retailer sold 80 percent of Walmart Brazil to Advent International, while keeping 20 percent of the business. The deal was announced in June and closed August 1.