Wal-Mart's Web Clout Drives Shares to Record -- WSJ

By Sarah Nassauer Features Dow Jones Newswires

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (November 17, 2017).

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

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

Wal-Mart shares rose nearly 11% on Thursday to an all-time closing high of $99.62. The stock has rallied 44% so far this year, much of the gain coming after the retailer in October gave an upbeat forecast for profit and sales in its 4,700 U.S. stores and 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, " Greg Foran, chief executive of Wal-Mart U.S., said on a conference call with reporters on Thursday.

The company's fiscal third-quarter results bucked a string of mostly downbeat reports from retailers this week, including big-box stores like Target Corp. and off-price operator TJX Cos., as they battle a shift to online shopping and heavy discounting. One exception was home-improvement retailer Home Depot Inc., which continued to log strong gains with a boost from hurricane-recovery sales.

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Wal-Mart, which gets about half of its U.S. revenue from groceries, said Thursday that sales excluding fuel at stores open more than a year rose 2.7% in the period ended Oct. 27 -- its 13th straight quarter of gains and the fastest growth since the spring of 2009.

The company has focused on improving its food business, and in the wake of Amazon's Whole Foods acquisition earlier this year has 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.

Wal-Mart's profit margin fell in the latest latest period, and some analysts questioned whether Wal-Mart shares could rise further with margins under pressure from investments made to boost both in-store and onlinesales. "Any way you slice it, Wal-Mart seems expensive," said Morgan Stanley analyst Simeon Gutman in a research note.

Still, investors on Thursday appeared to embrace a new narrative for Wal-Mart that has it well-equipped to battle Amazon, said Mr. Gutman. Its shares also likely got a boost from investors fleeing consumer staple stocks or other retailers, he noted.

The quarter's 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. rose 50% from a year earlier for its fiscal third quarter, following a 60% rise in the preceding period. The company doesn't disclose e-commerce sales totals on a quarterly basis. For the current fiscal year, Wal-Mart expects its global e-commerce sales to hit $17.5 billion, still a fraction of its nearly half a trillion dollars in annual revenue.

Marc Lore, Wal-Mart's head of U.S. e-commerce, 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," he said on the conference call with reporters. "We can see the things we have done are increasing top-line sales."

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

Wal-Mart is focused on cutting costs to improve its profit 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 taken other steps to bolster margins. 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 this week.

In recent years, Wal-Mart has shifted from its long-running strategy of building more cavernous supercenters. In 2015 it closed more than 150 U.S. stores. It plans to build just two dozen stores next fiscal year. Instead, it has focused on improving existing stores and investing in e-commerce, including acquiring online retail startups and adding fulfillment centers. The company has also raised starting wages for store employees.

The company on Thursday said it was close to settling a yearslong foreign-bribery probe. Wal-Mart, which has spent $870 million to investigate and upgrade compliance following allegations of bribery in Mexico and other countries, said it would record a $283 million charge related to the settlement as talks with U.S. government agencies have "progressed."

The quarterly rise in same-store sales for Wal-Mart's U.S. operations was well above the 1.8% growth estimate of analysts polled by Consensus Metrix. Wal-Mart said the 2.7% rise reflected in part a 1.5% increase in store traffic, as well as its e-commerce gains.

Consumer spending in the U.S. has been healthy for most of the year, buoyed by low inflation that has kept prices in check and robust employment that has bolstered household budgets. But traditional retailers haven't necessarily shared in the bounty, as Americans spend more on cars and entertainment and increasingly shop online.

Retail industry organizations and consultants have largely predicted strong holiday sales this year, though an increasing share is likely to be captured online. "We expect a solid performance for the important holiday season," said Mr. Biggs, Wal-Mart's finance chief.

In the fiscal third quarter, Wal-Mart's revenue increased 4.2% from a year earlier to $123.18 billion. Profit fell to $1.75 billion, or 58 cents a share, from $3.03 billion, or 98 cents a share, as the company booked charges for paying down debt early, international property sales and the bribery-probe settlement. Absent the charges, profit was $1 a share.

Austen Hufford contributed to this article.

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

(END) Dow Jones Newswires

November 17, 2017 02:47 ET (07:47 GMT)