Wal-Mart Sales Growth Freshens Retail Mood -- Update

Wal-Mart Stores Inc. posted its strongest quarterly U.S. sales since 2009, boosted by a big jump in e-commerce and post-hurricane demand, though profits slipped as the retail giant continued to invest to improve stores and cut prices.

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.

"We have momentum, and it's encouraging to see customers responding to our store and ecommerce initiatives," CEO Doug McMillon said in prepared remarks. 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.

The retailer also raised its adjusted profit outlook for the year ending in January. Shares rose 4.6% in premarket trading.

The company 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 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 ecommerce sales and the recent hurricanes. Traffic rose 1.5%.

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.

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

(END) Dow Jones Newswires

November 16, 2017 08:26 ET (13:26 GMT)