Wal-Mart Surges After Sales Growth Hits Post-Recession High

Updated on
  • Shares touch record high after company boosts profit forecast
  • Food, online sales helped fuel same-store sales in the U.S.
Wal-Mart Tops 3Q Estimates on Strong Sales Gains

Wal-Mart Stores Inc. soared to an all-time high after delivering its strongest U.S. sales gain in more than eight years, helping the retailer keep pace with rival Amazon.com Inc. as the crucial holiday season begins.

Comparable sales at domestic Wal-Mart stores grew 2.7 percent in the third quarter, the company said on Thursday, beating the increase projected by analysts. It also boosted its earnings forecast for the full year, sending the shares on their biggest rally in more than nine years.

The results added fresh evidence that Wal-Mart’s resurgence is here to stay. The e-commerce business saw gross merchandise volume -- a measure of all the goods it sells online -- soar 54 percent in the quarter, a sign it may be chipping away at Amazon’s dominance. The online growth figure now includes sales from Jet.com, which it acquired in the third quarter of last year.

It was “a monster third quarter,” Gordon Haskett analyst Chuck Grom said in a note. “The bar was high, and the team from Bentonville hit it out of the park.”

Wal-Mart shares rose 11 percent to $99.62 Thursday in New York, the highest close since the company’s public offering in 1970. The stock has gained 44 percent this year.

The world’s biggest retailer has now delivered 13 consecutive quarters of sales growth in its home market, helped by price cuts, cleaner stores and an aggressive push online. Boosting food sales has also has been key to Wal-Mart’s rebound. Still, it faces a continued uphill fight against Amazon, which should capture about half of total holiday sales growth, according to consulting firm Bain & Co.

To draw in more upscale shoppers, Wal-Mart has acquired brands like Bonobos and Moosejaw and announced plans this week to add products from Lord & Taylor to its website next year -- part of a broader redesign of the site. Wal-Mart U.S. e-commerce chief Marc Lore told reporters Thursday that more deals like the Lord & Taylor pact are in the works.

Digital Focus

“Wal-Mart is laser-focused on growing digital sales,” said Ken Perkins, president of Retail Metrics.

Excluding some items, earnings amounted to $1 a share in the period, beating the 98 cents estimated by analysts. The company also raised its adjusted full-year earnings guidance to a range of $4.38 to $4.46 a share.

“It was a really good, broad-based quarter,” Chief Financial Officer Brett Biggs said in an interview. “We’ve had three pretty solid quarters now and see good momentum across the business, and so we felt this was the right way to tell our investors that we see a solid quarter coming up.”

Wal-Mart recorded an expense of 9 cents a share, or $283 million, as it works to resolve a long-running U.S. investigation into allegations of bribery by employees overseas. The company has been preparing to pay roughly $300 million to settle the matter, people familiar with the situation said earlier this year.

“We’re still in discussions with government agencies, but we’re at a point where we can reasonably estimate a loss,” Biggs said.

The Bentonville, Arkansas-based company also reported a 4-cent expense stemming from a decision to exit certain properties overseas. It didn’t specify the country.

Grocery Gains

Total revenue climbed 4.2 percent to $123.2 billion. The grocery business accounts for more than half of Wal-Mart’s U.S. revenue.

The growth in food may be especially heartening to investors, given how cutthroat the supermarket industry has become. Amazon’s push into groceries -- a move backed by its acquisition of Whole Foods earlier this year -- has only made the business more competitive.

Wal-Mart’s grocery-pickup option, which lets customers order food online and then fetch it at a store, has helped. The company said in October that it was adding 1,000 locations that can handle grocery pickup, roughly double the current number. The service is also bringing in customers who had not shopped at Wal-Mart before, U.S. stores chief Greg Foran said Thursday.

“Market share in the critical food category continues to grow,” Moody’s Corp. analyst Charlie O’Shea said in a note. “The expansion of its buy-online, pickup-in-store capability is driving increased sales.”

Wal-Mart’s rosy numbers contrasted with those of rival Target Corp., whose margins have been squeezed by an effort to cut prices on everyday items and add online delivery options. Target raised its full-year profit forecast Wednesday, but the midpoint of the range trailed analysts’ average projection. That sent the shares down 9.9 percent.

One in four shoppers surveyed by Jefferies LLC analysts said they expect to spend more at Wal-Mart this year, compared with only 6.5 percent who said the same about Target. The survey respondents also said Wal-Mart’s prices, shopping experience and product selection have improved.

Wal-Mart is trying to generate more excitement in its stores during the holidays, with plans to throw 20,000 parties and conduct 165,000 product demos. It has also simplified the return process for those using its smartphone app, aiming to shave the average time it takes to process a return from about 5 minutes to 30 seconds.

“We continue to like Wal-Mart’s turnaround story,” Jefferies analyst Dan Binder said in a note.

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