Walmart Posts 9th Comp Increase in Q3

As it moves into the crosshairs of the most critical time of its calendar year, Wal-Mart Stores Inc. hit its ninth consecutive increase in U.S. same-store sales, which rose 1.2 percent for the third quarter of 2016, alongside a 2.5 percent net sales gain of approximately $1.8 billion.

The company said its comp-sales increase was sparked by improved unit sales and a modest 0.7 percent uptick in foot traffic, the latter of which was down from the previous quarter’s rise. Meanwhile, the Bentonville, Ark.-based chain’s e-commerce sales rose 21 percent, boosted by the purchase of online retailer Jet.com in September. On a two-year stacked basis, Walmart’s comp sales and traffic were up 2.7 percent and 2.4 percent, respectively, while food deflation in Q3 negatively impacted the segment’s comps by approximately 150 basis points.

Gross margin increased 32 basis points, with improved margin rates across general merchandise, food and consumables. Margins also benefited from savings in procuring merchandise and lower transportation expense as a result of lower fuel costs. Partly offsetting these cost-of-goods reductions was the continued implementation of the company's multiyear strategy of incremental price investment.

Expenses increased 8.6 percent, primarily as a result of  associate wage rate increases, as well as investments in technology. Jet.com expenses were also a contributing factor.

Last year's Q3 results included a favorable $74 million lease accounting adjustment. Excluding this adjustment, expenses would have increased 8.1 percent.

Format Growth

Store growth included net openings of nine Supercenters (including conversions and relocations) and 18 Neighborhood Markets. Walmart also expanded its online click-and-collect grocery service to some 35 new markets and to nearly 200 more locations. All told, the service is now available in more than 100 markets and nearly 600 locations.

Walmart's results included the operating impact of Jet.com for half of the quarter, as well as the transaction costs related to the $3.3 billion acquisition. Both of those factors were initially expected to fall in the fourth quarter. Meanwhile, food deflation dented revenue by 150 basis points this quarter, which is less than stellar for the segment that accounts for roughly half of the company's overall sales.

Nevertheless, Doug McMillon, president and CEO, said he was pleased “that we can see real progress stemming from our strategic choices” achieved during Q3. "We had a solid third quarter," he added. "Our e-commerce growth accelerated, operations in the U.S. continued to strengthen and international delivered another solid performance."

In a call with investors on Thursday, McMillon spoke favorably of the company’s “continued momentum” and acknowledged “our associates [who] are doing a good job and [are] much appreciated."

Gaining Traction, Moving Faster

“We have a strong company. We're executing well in our stores and making strategic investments in e-commerce to accelerate growth,” said McMillon, noting that the world’s largest retailer “is gaining traction and moving faster to better serve our customers every day. When we were together last month, I outlined four priorities: make every day easier for busy families, operate with discipline, be the most trusted retailer, and deliver results and position the company to win. By executing on these priorities, the customer and our shareholders will benefit.”

Also during the investor call, McMillon tipped his hat to Greg Foran, who leads the retailer’s U.S. leadership and associate teams, for continuing “to execute our plan to win, and it's working. Our customer satisfaction scores continue to improve, and the team did a great job of managing the flow of inventory again this quarter. Comp-store inventory was down approximately 6 percent and in-stock levels are up.”

While discussing highlights of the company’s e-commerce business, which he said “demonstrates how we're moving faster and making every day easier for busy families,” McMillon said that “we're excited to see Walmart.com gaining traction. From a marketplace perspective, we're scaling fast, adding 8 million SKUs over the last three months alone. e-Commerce contributed 50 basis points to our Q3 Walmart U.S. comps,” which he said is the largest to date and which is successfully “complementing the momentum we have in our stores."

Further, about the Jet.com acquisition, McMillon said: “We're excited to have Marc Lore as a member of our leadership team driving U.S. e-commerce for Walmart and Jet.com. One of the reasons Jet.com makes sense for Walmart is the common ground we share with basket economics. Walmart's advantage has always been in providing the lowest prices on a basket of goods, and Jet has created a unique way to deliver the lowest-cost basket online. When customers build a bigger basket online, the economics work in their favor – and ours.

“Marc has hit the ground running since the acquisition was finalized,” continued McMillon, citing teams that were immediately established “to accelerate our integration efforts, and we're working hard to leverage our strengths, such as optimizing our combined fulfillment networks, utilizing our scale in areas like shipping, sharing our assortment and leveraging the strengths of our marketing teams. We're excited to reap the benefits of our combined businesses.”

Looking ahead to the near term, McMillon said, “We’re gearing up for the holidays – our busiest time of the year – and we’ll be ready with great items at low prices to delight our customers. Here in the U.S., we’ll have an expanded assortment online and available for pickup, in addition to holiday helpers in stores to help speed customers through the checkout line.”

He also backtracked to the company’s goal “to be the most trusted retailer” in the world, as outlined at Walmart’s shareholders meeting in October. “Part of building that trust is not only helping customers save money and time, but helping them feel good about shopping at Walmart. We want them to be able to trust that the products they buy are good for their families, the planet and the people that made them." McMillon pointed to the new targets Walmart recently set for sustainability, food and responsible sourcing, in the areas of waste, renewable energy and sustainable products, including food. "Customers have more transparency than ever before when they shop, and they expect us to lead in these areas, but they will also expect us to earn their trust, and we will. We’re excited about this work and are committed to lead in what we believe is a new era of trust and transparency in retail."