Wal-Mart Sales Growth Freshens Retail Mood -- 2nd Update

By Sarah Nassauer and Austen Hufford Features Dow Jones Newswires

Wal-Mart Stores Inc. posted strong sales gains in the latest period, boosted by a big jump in e-commerce and post-hurricane demand, though profits slipped as the retail giant continued to cut prices and spend money to improve stores and boost online sales.

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The results buck a string of mostly downbeat retail reports this week, from big-box stores like Target Corp. to off-price operator TJX Cos. as they battle a shift to online shopping and heavy discounting. One exception, home-improvement retailer Home Depot Inc., continued to log strong gains, boosted by hurricane recovery sales.

Wal-Mart, which gets about half of its U.S. revenue from groceries, said Thursday sales at existing stores excluding fuel rose 2.7% in its latest quarter. The company highlighted its grocery business, saying that section delivered the strongest quarterly same-store sales growth in more than five years.

The retailer also raised its adjusted profit outlook for the year ending in January. Shares rose 4.4% in premarket trading.

Wal-Mart also said it was close to settling a yearslong foreign-bribery probe. The company said it would record a $283 million accrual charge related to the settlement as talks with the Justice Department have "progressed."

Same-store sales at Wal-Mart's U.S. stores came in at 2.7%, well above the 1.8% growth analysts polled by Consensus Metrix were expecting. Wal-Mart said results were boosted by more shoppers coming to stores, higher e-commerce sales and the recent hurricanes, marking the 13th consecutive quarter of higher sales in existing stores. Traffic rose 1.5%.

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But the company's profit margin fell as it lowered prices to compete and from continued growth in lower-margin e-commerce sales. The hurricanes also cut into its margin.

In recent years, Wal-Mart has shifted its growth strategy from building more cavernous supercenters to improving existing stores and investing in e-commerce. In 2015 it closed more than 150 U.S. stores. It plans to build just two dozen stores next fiscal year and has vowed to cut more costs.

Wal-Mart executives say they will boost U.S. sales by bringing more shoppers to existing locations and driving online sales. Wal-Mart has raised starting wages for store employees, refurbished stores and bought smaller online retailer startups.

But as more shoppers buy items online, often from Amazon.com Inc., many traditional retailers have struggled to simultaneously keep sales and profits growing as more invest to improve stores or compete online. Wal-Mart recently started charging more for some products on Walmart.com than in stores, in part to offset the cost of home delivery and improve online profitability, The Wall Street Journal reported earlier this week.

Wal-Mart, which has acquired online seller Jet.com and niche apparel sites like Bonobos and ModCloth, said e-commerce sales in the U.S. jumped 50% from a year ago.

Target Wednesday said sales in existing stores rose 0.9%, but profit plunged 21% as it spent to remodel stores and lower prices. Many department store chains continued to struggle, including Sears Holding Corp. and Macy's Inc.

On Tuesday TJX Cos., which operates TJ Maxx, Marshalls and HomeGoods stores, reported lower same-store sales for the first time since 2009, a rare miss for a company that has avoided many of the problems weighing down the retail sector. Like many retailers that reported weaker sales figures, TJX executives pointed to hurricanes and warmer-than-expected weather for the sales slump.

Retail industry organizations and consultants have largely predicted strong holiday sales during the fourth quarter. However, some analysts have painted a less rosy picture for traditional retailers.

"We don't share in that same optimism," said Morgan Stanley analyst Simeon Gutman in a recent research note. "Spending dollars may be constrained by headwinds like higher gasoline prices and basically a growing share among fewer retailers."

Amazon is expected to earn 43.5% of U.S. online sales this year, up from 38.1% last year, according to eMarketer, a research firm. Wal-Mart will grow to 3.6%, from 2.8% last year, said the firm.

Overall, Wal-Mart's quarterly revenue increased 4.2% to $123.18 billion.

The company's profit fell to $1.75 billion, or 58 cents a share, compared with $3.03 billion, or 98 cents a share a year ago as it took charges for paying down debt early and the bribery probe settlement. On an adjusted basis, profit came in at $1 a share.

Analysts polled by Thomson Reuters had expected revenue of $121 billion and adjusted earnings per share of 97 cents.

Write to Sarah Nassauer at sarah.nassauer@wsj.com and Austen Hufford at austen.hufford@wsj.com

Wal-Mart Stores Inc. is holding its ground against Amazon.com Inc.

The world's biggest retailer posted its strongest quarterly U.S. sales growth in nearly a decade Thursday, boosted by a big jump in e-commerce and strong store traffic at a time when many traditional retailers are struggling to keep their business growing.

Shares jumped more than 8% in morning trading Thursday, setting an all-time high. The company's share price has rallied 41% so far this year, much of the gains coming since October after Wal-Mart said it would grow profits and sales in its 4,700 U.S. stores as well as online.

"I can tell you we've got plenty of work to do still in our stores. But I'm pleased with the momentum and pleased with the plan we have in place, " said Greg Foran, chief executive of Wal-Mart U.S., on a conference call with reporters.

The results buck a string of mostly downbeat retail reports this week, from big-box stores like Target Corp. to off-price operator TJX Cos., as they battle a shift to online shopping and heavy discounting. One exception, home-improvement retailer Home Depot Inc., continued to log strong gains, boosted by hurricane recovery sales.

Wal-Mart, which gets about half of its U.S. revenue from groceries, said Thursday sales at existing stores excluding fuel rose 2.7% in its latest quarter -- its 13th straight quarter of gains and the fastest growth since the quarter ended May 2009. The company highlighted its grocery business, saying that section delivered the strongest quarterly same-store sales growth in more than five years.

The company has focused on improving its grocery business and in the wake of Amazon's Whole Foods acquisition earlier this year, ramped up efforts to let shoppers order groceries online. Its grocery business delivered the strongest quarterly same-store sales growth in more than five years, including sales from online grocery pickup now available in 1,100 stores.

The online and in-store growth is "impressive and underscores the company's determination to not only defend its leading position but to extend it," said Neil Saunders, managing director at GlobalData Retail.

Wal-Mart, which has acquired online seller Jet.com and niche apparel sites like Bonobos and ModCloth, said e-commerce sales in the U.S. jumped 50% from a year ago. In the previous quarter, U.S. e-commerce sales rose 60%. It doesn't break out quarterly e-commerce sales figures. Wal-Mart expects its global e-commerce sales to hit $17.5 billion this year, still a fraction of the company's nearly half a trillion dollars in annual revenue.

Wal-Mart head of U.S. e-commerce Marc Lore declined to share how the company tracks Amazon's market share versus its own. "Internally we are really focused on just getting the fundamentals right," Mr. Lore said on a call with reporters. "We can see the things we have done are increasing top-line sales."

Amazon is expected to capture about 44% of U.S. online sales this year, up from 38% last year, according to eMarketer, a research firm. Wal-Mart will grow to about 3.6% from 2.8% last year, the firm said.

Still, as more shoppers buy items online, often from Amazon, many traditional retailers have struggled to simultaneously keep sales and profits growing as more invest to improve stores or compete online. Wal-Mart's profit margin fell as it lowered prices to compete and as lower-margin e-commerce sales grow. The hurricanes also cut into its margin.

Wal-Mart is focused on cutting costs to improve margins, Chief Financial Officer Brett Biggs said in an interview. "To be candid it's not what it used to be, so we are getting back to some everyday low cost roots."

Wal-Mart has also worked to boost revenue elsewhere, for example it started charging more for some products on Walmart.com than in stores, in part to offset the cost of home delivery and improve online profitability, The Wall Street Journal reported earlier this week.

In recent years, Wal-Mart has shifted its growth strategy from building more cavernous supercenters to improving existing stores and investing in e-commerce. In 2015 it closed more than 150 U.S. stores. It plans to build just two dozen stores next fiscal year and has vowed to cut more costs.

Wal-Mart executives say they will boost U.S. sales by bringing more shoppers to existing locations and driving online sales. Wal-Mart has raised starting wages for store employees, refurbished stores and bought smaller online retailer startups.

The company also said it was close to settling a yearslong foreign-bribery probe. Wal-Mart, which spent more than $800 million to investigate and upgrade compliance following allegations of bribery in Mexico and other countries, said it would record a $283 million accrual charge related to the settlement as talks with the U.S. Department of Justice have "progressed."

Same-store sales at Wal-Mart's U.S. stores came in well above the 1.8% growth analysts polled by Consensus Metrix were expecting. Wal-Mart said results were boosted by more shoppers coming to stores, higher e-commerce sales and the recent hurricanes. Traffic rose 1.5%.

Consumer spending has been healthy for most of the year, buoyed by low inflation that has keep prices in check and high employment that has put more money in American household budgets. But much of that spending hasn't flowed to tradition stores. People are spending more on cars and entertainment, and increasingly shopping online.

Retail industry organizations and consultants have largely predicted strong holiday sales during the fourth quarter. However, some analysts have painted a less rosy picture for traditional retailers. "We don't share in that same optimism," said Morgan Stanley analyst Simeon Gutman in a recent research note. "Spending dollars may be constrained by headwinds like higher gasoline prices and basically a growing share among fewer retailers."

In the third quarter, Wal-Mart's quarterly revenue increased 4.2% to $123.18 billion. The company's profit fell to $1.75 billion, or 58 cents a share, compared with $3.03 billion, 98 cents a share, a year ago as it took charges for paying down debt early and the bribery probe settlement.

Austen Hufford contributed to this article.

Write to Sarah Nassauer at sarah.nassauer@wsj.com

(END) Dow Jones Newswires

November 16, 2017 11:24 ET (16:24 GMT)