Wal-Mart Stores Inc.'s sales rose in the latest quarter, boosted by an e-commerce surge and strong grocery sales, a sign that the world's largest retailer continues to brush off the malaise afflicting some competitors.
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But as is typical for brick-and-mortar stores today, the growth came at a cost. The company invested in lowering prices, improving stores and driving online sales, but its expenses rose and margins fell.
Sales at U.S. stores open at least a year rose 1.8%, the 12th consecutive increase for the world's latest retailer by sales, boosted by foot traffic up 1.3%.
"Our customers are responding to the improvements in stores and online," Wal-Mart Chief Executive Doug McMillon said in a statement.
Wal-Mart shares fell 1.9% to $79.41 in morning trading Thursday.
The company said it expects third-quarter earnings per share of 90 cents to 98 cents. It said it sees full-year profit of $4.30 to $4.40 per share, compared with an earlier estimate of $4.20 to $4.40 per share.
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Wal-Mart has already done some of the hard work that rivals like Target Corp. are now undertaking, such as investing in store improvements and digital initiatives. On Wednesday, Target, which also lowered prices in its latest quarter, reported sales growth and raised its profit forecast.
Wal-Mart's second-quarter online sales in the U.S. surged 60%. The company purchased online retailer Jet.com in September, followed by smaller sites such as ModCloth, Moosejaw and ShoeBuy. Jet.com founder Marc Lore also took the helm of Wal-Mart's U.S. e-commerce operations, helping to advance services like two-day shipping on more products and discounts on in-store pickup for some orders, efforts that are driving the online sales jump, said Mr. Lore on a call with reports Thursday.
Wal-Mart U.S. CEO Greg Foran said the company plans to offer online grocery pickup in 1,100 stores by the end of the year.
To pay for the efforts, over the last year, the company has used automation to replace some jobs and laid off over 1,000 corporate employees. It has pressured suppliers to cut their prices, increased the fees suppliers pay to pass inventory through warehouses and narrowed the shipping window suppliers must hit to avoid fines.
Even so, Wal-Mart's U.S. gross margin fell and operating expenses rose 3.9% in the quarter.
"We are not at the place we want to be from an expense standpoint," Wal-Mart chief financial officer Brett Biggs said in an interview.
In a note, GlobalData Retail analyst Neil Saunders said that Wal-Mart can withstand the pressure, calling it "one of the few firms that have the firepower to cope with the push toward compressed prices and margins."
Wal-Mart's grocery sales grew as it lowered prices and worked to improve its fresh food. Executives are focused on the category in the wake of Amazon.com Inc.'s purchase of Whole Foods Market Inc. in June and the U.S. expansion of discount grocers like Aldi and Lidl. Food categories delivered Wal-Mart's strongest quarterly sales in existing stores in five years, partially aided by inflation, said the company.
Overall, Wal-Mart earned $2.9 billion, or 96 cents a share, compared with $3.77 billion, or $1.21 a share, a year ago. On an adjusted basis, which excludes certain debt and asset-sale-related charges, earnings were $1.08 a share, up from $1.07 a share. Revenue grew 2.1% to $123.36 billion.
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(END) Dow Jones Newswires
August 17, 2017 10:52 ET (14:52 GMT)