Walmart Inc. on Thursday easily surpassed Wall Street analysts’ expectations in several key metrics when it reported third-quarter fiscal 2019 financial results that showed continued strength online and in stores. The e-commerce and retail giant has been investing heavily in technology, using machine learning across the enterprise and deploying intelligent bots to perform repetitive, mundane tasks, while leaning into service with training for sales associates.
The efforts seem to be paying off. A study by eMarketer predicts Walmart — including Walmart.com, Jet.com and Sam’s Club — will overtake Apple to become the third largest e-commerce retailer in the U.S. with 4 percent of all online sales in 2018, or $20.91 billion. An earlier estimate had Walmart garnering a 3.7 percent market share. However, the achievement pales in comparison to Amazon, which is expected to capture a 48 percent share of U.S. e-commerce in 2018 with online sales of $252.1 billion, according to eMarketer. The marketing research firm said U.S. e-commerce sales will climb to $525.69 billion — comprising 9.8 percent of total U.S. retail sales in 2018.
Updating for the first quarter of next year, Walmart said it expects GAAP earnings per share of $2.26 to $2.36, and adjusted EPS of $4.75 to $4.85, and comps should be ahead by at least 3 percent.
Walmart U.S. posted a 3.4 percent comp-store sales increase, excluding fuel in the third quarter, versus a 2.7 percent gain in last year’s period. Growth was strong across channels, with store traffic up 1.2 percent, and ticket, 2.2 percent. Apparel had the strongest comp-store sales increase in the general merchandise category, in part due to the strength of new private brands. U.S. e-commerce sales advanced 43 percent, and are poised to achieve 40 percent growth for the year.
Sam’s Club comps rose 5.7 percent, excluding fuel and tobacco. Comp-store sales were positive in all major international markets, led by a 6.3 percent gain in Mexico.
Walmart Inc. paid $16 billion for a 77 percent stake in India’s largest online retailer, Flipkart, which is included in the company’s operating results for 44 days of the quarter and drove significant operating income dilution in line with expectations. Flipkart was in the news this week when group chief executive officer Binny Bansal resigned in the wake of “serious misconduct” accusations, which Walmart declined to discuss.
“The holidays are fast approaching, and we have plans in place in our stores and online to continue taking market share,” said Doug McMillon, Walmart Inc. chief executive officer, citing Check Out With Me, new technology that lets shoppers pay anywhere in the store. “Toys will be a focus with 40 percent more toys online and 30 percent of the fall assortment is new.”
“We feel good about our inventory and price position as we head into the holiday period,” said Brett Biggs, executive vice president and chief financial officer.
The fact that Walmart raised its fourth-quarter guidance “is consistent with our view that Walmart will be one of the pace-setters this holiday season,” said Charlie O’Shea, Moody’s lead retail analyst. “The impressive third-quarter performance continues to validate Walmart’s long-term investment strategy, with solid revenue and operating margin growth, and online sales growth that continues to exceed the company’s stated goal for 2018. Walmart is leveraging its massive store network as a key driver of its prodigious online growth on top of a sizable base, which continues at a rapid clip.”
“Check Out with Me, to be able to check out in the aisle is a game-changer, and they’re rolling it out and scaling it,” said Carol Spieckerman, president of Spieckerman Retail, adding that convenience is the operative word for Walmart for the holiday.
McMillon credited the strong performance on “taking risks and learning from our successes and failures,” citing innovations such as increasing automation and using robotics in the supply chain and across the back, middle and front of the store; aggressively rolling out grocery pickup and delivery in the U.S.; testing solutions for last-mile delivery; pioneering the use of blockchain for food safety at scale, and testing conversational commerce with the Jetblack pilot.
“We’re making acquisitions and [forging] partnerships to play offense and expand our e-commerce assortment,” McMillon said. “We’re adding more digitally native brands to the portfolio. We have an opportunity to improve the margin mix by expanding the tail of the assortment through first-party items and marketplace. The process takes time, and we’re making progress. We have a new partnership with Ellen DeGeneres and acquired innerwear specialty retailer Bare Necessities.”
During the third quarter, the Bentonville, Ark.-based giant also announced a partnership with PayPal to provide financial services and products and launched Bonobos and Nike on Walmart-owned Jet.com. It also acquired online plus-size retailer Eloquii. A test lab opening in Dallas will become an innovation lab for Sam’s Club, and a high-tech grocery operations center in California will move 40 percent more product than a traditional distribution center.
In the war with Amazon over holiday sales, McMillon said millions more marketplace items are available for free two-day shipping. Amazon dropped its $25 order minimum to offer free holiday shipping to consumers, including non-Prime members, with most products arriving in five to eight days. Prime members can receive free same-day delivery on millions of items.
Sam’s Club has been building momentum with technology, launching apps “at the rate of a start-up,” McMillon said, noting that e-commerce grew 32 percent in the recent third quarter.
Flipkart’s Big Billion Days event was a success with the highest number of concurrent users on the Flipkart app — nearly one million simultaneously — and one million smartphones sold in the first hour of the event. Walmex launched Cashi, a digital platform that offers secure payment on consumers’ mobile phones. An agreement to acquire Cornershop, an online marketplace platform for on-demand delivery in Mexico and Chile, was recently announced. The company continues to gain market share in Central America.
Comps in China grew by 2.2 percent, and Canada, 2.5 percent. In the U.K., where the proposed merger of ASDA and Sainsbury is waiting for government approval, comps increased 2 percent.
Operating income rose 4.7 percent in the third quarter to $4.98 billion, from $4.76 billion in the year-ago third quarter. Gross margin rate declined 28 basis points due primarily to the planned pricing strategy, transportation increases, and the mix effects of the growing e-commerce business, partially offset by the overlap from last year’s hurricanes. Income before taxes declined 10.5 percent from $2.89 billion to $2.57 billion.