The Bentonville, Arkansas-based company raised its guidance for the year in its fiscal third-quarter earnings report Tuesday, telling Wall Street analysts it had particularly strong market-share gains in the portions of its stores that sell groceries. And while distribution bottlenecks are resulting in American consumers not getting goods, some big retailers, including Walmart, have chartered their own cargo ships to guarantee delivery from overseas.
In fact, Walmart said its inventory in the third quarter was 11.5% higher than the prior year in advance of the holidays, an indication that more customers could be coming to its properties and nearby stores and other retail real estate in coming months.
“We’re ready,” Walmart CEO Doug McMillon said in a conference call with Wall Street analysts. “We have the people, the products, and the prices to deliver a great holiday season. Around the world, so many families depend on us for food, apparel, home items, TVs, and seasonal items like toys and Christmas trees. They trust us to have what they’re looking for and at the right price. And while this year has its challenges, we’re in position to serve them.”
The performance of Walmart, which has 10,500 stores under 48 banners including Walmart and Sam’s Club, is often viewed as a harbinger for what to expect from the U.S. retail sector. The company’s results came the same day the Commerce Department reported retail sales rose 1.7% in October, surpassing expectations and outperforming September’s results.
“Our momentum continues with strong sales and profit growth globally,” McMillon said in a statement. “We gained market share in grocery in the U.S., and more customers and members are returning to our stores and clubs around the world."
Walmart’s comparable U.S. sales, for stores open at least a year, in the quarter ending Oct. 29 rose 9.2% over the year-ago period. In the third quarter, total revenue was $140.5 billion, up 4.3%, even though it was hurt by roughly $9.4 billion related to divestitures, according to Walmart.
“After two quarters of reasonable but somewhat staid growth, Walmart has posted a very healthy uptick in sales,” Neil Saunders, managing director of analytics and consulting company GlobalData, said in a report.
International Sales Drop
Saunders described the retailer’s overall revenue growth as “a good outcome considering international sales dropped by just over 20% thanks to various divestitures” including the Asda supermarket chain in the United Kingdom.
“Within the U.S., Walmart posted an impressive 9.3% rise in sales and Sam’s Club revealed an even more spectacular 19.7% increase,” he said. “All these results come off the back of healthy gains in the prior year when totals sales rose by 5.2%.”
The retailer saw a rebound in its grocery sales, with growth of nearly 10%.
“Strong price positioning and omni offerings are resonating with customers,” the company said in a presentation for investors.
Food-category sales increased to $3.6 billion, “the strongest quarterly growth in six quarters, with broad-based strength, including strong growth in fresh categories,” according to Walmart, which added that “consumables reflected strength in pets, baby products and beauty."
One of the key factors behind Walmart’s increase in U.S. sales is inflation, especially in the grocery sector, according to Saunders, which is helping the retailer in two ways.
“First, Walmart is not immune to inflation and its own prices have risen, albeit modestly; this includes the curtailment of some discounting and promotional activity,” Saunders said.
Luring Penny Pinchers
The other dynamic in play now is consumers switching to Walmart to save money, according to Saunders.
“The sharp increase in inflation has been felt by many households, especially when it comes to grocery shopping, and this has created far more churn in where consumers buy,” he said. “Thanks to its solid low-price credentials, Walmart is one of the retailers households turn to to make their food budget stretch further. Our data show that Walmart has picked up more main shoppers and more occasional shoppers this quarter, both of which have pushed up store traffic and transaction volumes.”
According to McMillon, “fighting inflation is in [Walmart’s] DNA,” and “Sam Walton loves that fight and so do we.”
As a result, Walmart has “lots of variables to manage to deliver everyday low prices to customers and simultaneously strong financial results for our shareholders, and we’re using them,” McMillon said.
So even though Walmart faces heightened competition from rival low-price players, such as Aldi and the dollar stores, it’s still in a better position than rivals to make further gains, according to Saunders.
“This is mainly because of its extensive store coverage, its strong visibility and its wide range,” Saunders said. “Basically, as prices rise, more Americans turn to Walmart to help them save money. In our view, these factors mean Walmart will be a net beneficiary of a more inflationary environment, at least from a sales perspective.”
The company increased its full-year guidance and is now predicting U.S. comparable sales to be above 6%, excluding fuel.