New York (AFP) – Walmart shares surged in pre-market trading 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 in keeping prices low had 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 component in a 3.8 percent rise in overall revenues to $128.0 billion compared with the year-ago period.
But 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 surged 10.8 percent in pre-market trading to $99.95.
The company, competing hard for customers with Amazon and other e-commerce companies, has been adding grocery pickup at US stores and now offers the program in 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 to pickup towers that allow customers order goods on smartphones 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 also attributed the gains to strength in the macroeconomy and to 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 commodity price inflation, 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 said it is working through regulatory approval to combine its Asda and J Sainsbury.
Walmart on June 4 announced it reached a deal to sell 80 percent of Walmart Brazil to Advent International, while keeping 20 percent of the business.
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