FINANCE

Analyst: Walmart shows that traditional retail can thrive if they adapt, evolve

The second quarter numbers show that Walmart remains firmly on the front foot and is more than holding its own in a challenging and competitive retail market. It is particularly pleasing to see sales growth accelerate since Q1 — a clear sign that the various initiatives and investments are paying dividends.

Admittedly, some of the growth numbers may seem small. The 3.3% uplift in Walmart's U.S. sales, for example, looks rather weak compared to the 17% increase in Amazon's retail sales over a similar timeframe. However, in monetary terms the gains are significant. Walmart US took $2.5 billion more than the same period last year. In this context, Walmart's performance compares favorably to Amazon, which added $3.5 billion to its retail sales line on a global basis.

One of the particular areas of success for Walmart is grocery. Our data show continued gains in customer share, even in areas where discounters like Aldi have expanded. The reason for this is mostly, although not completely, down to Walmart's continued investment in everyday low prices. As the grocery sector enters one of its toughest phases, we believe that Walmart is well positioned to make further gains. It is one of the few firms that have the firepower to cope with the push towards compressed prices and margins.

It is certainly true that investments in price, especially on grocery, have eroded gross margins. So too have the various e-commerce activities that Walmart is undertaking. However, it is also pleasing that, for the second consecutive quarter, the U.S. business managed to increase operating income, which rose by 2.2%.

Focusing more on e-commerce, we remain supportive of Walmart's efforts to boost its online business through a combination of organic growth and acquisitions. The addition of firms like Moosejaw, Shoebuy, and Bonobos not only give Walmart more of a stake in the digital marketplace but also expand its reach into higher margin categories, niche areas, and more affluent shopper segments. Although these businesses have a somewhat different position than Walmart's core operation, they still benefit from the firm's expertise in logistics and its scale and reach.

The results of the efforts made in digital are evident from the 67% increase in online gross merchandise value over the period. Acquisitions made a big contribution to this, but schemes like free two-day shipping and discounts for products collected in stores have also increased shopper numbers and encouraged more people to use Walmart.com. All in all, we believe that Walmart is making considerable progress in online and is using its significant scale and reach through stores to its advantage.

While the home market remains robust, the international picture has also improved. In Mexico, Walmex continues to perform well with a 7% increase in comparables. However, Walmart will be most cheered by the turnaround in U.K. performance, where Asda's same-store sales rose by 1.8%. While this comes off the back of a 7.5% decline in the prior year, it is nevertheless an early sign that Walmart is addressing some of the issues that have long since plagued the U.K. operation.

All in all, we are pleased with the progress Walmart is making. We note the decline in net income, but believe that some short term erosion is necessary as the business invests in its future. In our view, Walmart is a demonstration that traditional businesses can survive and thrive in this era of retail if they are prepared to adapt and evolve.

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M.Brandley says:
Aug-18-2017 05:44 pm

walmart.
you ignore the fact they burned through more than 100 pct cash on hand. 3.4 billion in dividends and 4 billion in stock buybacks in the first 6 months alone! they burned through all cash on hand and then some! nice way to censor the entire article

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FINANCE

Digital and store sales boost Walmart in Q2

BY Marianne Wilson

Walmart reported better-than-expected results for its second quarter amid surging online sales and an increase in store traffic.

Walmart's total revenue for the period ended July 31 rose 2.3% to $123.36 billion for the quarter, better than analysts had expected. U.S. store visits increased 1.3% over the year-ago period.

Same-store sales for U.S. stores, excluding fuel, rose 1.7%. It was the discounter's 12th consecutive quarter of comparable sales gains. Sales rose 1.2% at Sam's Club, and 1.8% at Walmart.

Online transactions surged 60%, boosted by new digital initiatives, including the acquisition of e-commerce players like Moosejaw and Modcloth, and an expanded assortment of merchandise.

"Sales growth is coming from across the business – including stores, e-commerce and a combination of both," said CEO Doug McMillon in a statement.

A particularly bright spot for Walmart was food, which had its best same-store sales quarter in five years. The performance bodes well for the chain which is more than holding its own in the midst of brutal competition from the likes of Aldi, newcomer Lidl and Amazon.

Neil Saunders, managing director of GlobalData Retail, said that Walmart's continued investment in everyday low prices is helping to drive its success in grocery.

"As the grocery sector enters one of its toughest phases, we believe that Walmart is well positioned to make further gains," Saunders said. "It is one of the few firms that have the firepower to cope with the push towards compressed prices and margins."

Walmart has been investing heavily in its online operations and in price promotions. Those efforts took a toll on the chain's margins and net income.

"We note the decline in net income, but believe that some short term erosion is necessary as the business invests in its future," Saunders commented. (For more of his commentary, click here.)

Net income fell 23% to $2.9 billion, or 96 per cents per share, from $3.7 billion, or $1.21 per share, in the year-ago period, at least partly due to a loss from repurchasing debt after a bond tender offer.

Excluding special items, the discounter reported adjusted earnings per share of $1.08 a share, topping analysts' estimates of $1.07 per share.

Gross margins were down 11 basis points to 25%, including a five-basis-point decline in the United States. Operating margins fell to 4.9% from 5.1%, and U.S. operating expenses rose 3.9%.

"Strategic price investments in key markets and the growing mix of our e-commerce business reduced the gross margin rate," Walmart CFO Brett Biggs said in a statement.

Walmart raised the low end of its earnings outlook for the full year, now forecasting profit ranging from $4.30 to $4.40 per share, adjusted. Previously, the retailer said it expected to earn $4.20 to $4.40 a share. Analysts were calling for earnings per share of $4.37.

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M.Brandley says:
Aug-17-2017 04:51 pm

walmart
what was left out of the article was this. They burned through over 100 pct of cash on hand in the first 6 months. combined they went through 7.5 BILLION in dividends and stock buybacks. 4 billion in buybacks , the rest in dividens. HMm so tell me is this how you non GAAP cook the books people and selectively leave out the most important part of info from the articles? yea, thought so

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DESIGN/CONSTRUCTION

Target’s Q2 Earnings Call: Six Interesting Facts

BY Marianne Wilson

Target's remodeling efforts, new smaller store format, same-day delivery pilot and private-label brands were among the topics discussed by company executives during the chain's quarterly earnings call on Wednesday with investors and analysts. Here are six interesting points from the call worth noting:

1. Target's ambitious remodeling effort, which calls for the transformation of the look and feel of more than 600 stores over a three-year period, is paying off. While the retailer said it sees a range of outcomes on an individual store level, average sales lifts are in line with its plan to deliver a 2% to 4% sales lift in remodeled stores.

2. The pace of store remodels will pick up in 2018. The company is on track to complete more than 100 remodels this year, with 63 completed to date.

3. Target will open nearly 30 small-format stores this year, with a total of more than 100 planned over the next three years. In July, it opened nine new small stores on top of four in the first quarter. The July openers have been particularly strong out of the gate, company executives said.

Sales productivity in the seven small format Target stores that have been open for more than a year is more than double the company average, and the stores have been delivering high single-digit comp increases so far in 2017.

4. The company is experiencing rapid growth in its capability to ship digital orders from stores directly to customers' homes. In the fall, it plans to roll out the program to another 350 stores in advance of the holiday season, bringing the total number of ship from store locations to more than 1,400 stores.

5. Target's efforts to differentiate its assortment with exclusive brands are resonating with customers. Its Cat & Jack kids' apparel brand has exceeded expectations and crossed the $2 billion mark only slightly more than a year after its launch. Infant brand Cloud Island has generated double digit comp increases since its launch in May.

Based on the success of these and other private brands, Target will, as previously announced, launch 12 new brands by the end of 2018, including several this fall.

6. The value of the average basket for same day-delivery orders, which is currently being tested in Target's Tribeca store in downtown Manhattan, is more than six times the store average at the store and contains nearly four times the units compared with the store's typical basket. Home is the most common category, ahead of essentials, food and beverage. The company plans to expand the same day delivery test to several other New York City locations in the fall.

BONUS: Target is REALLY excited about the upcoming Star Wars release ("Stars Wars: The Last Jedi" opens Dec. 15.) It will launch its latest Star Wars assortments on Sept. 1, which it has dubbed Force Friday. To celebrate, 500 Target stores across the country will open at midnight.

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