FINANCE

Analysis: Walmart on fire online; store refurbishments paying off

This was the quarter in which Walmart started to lap tougher prior year comparatives. In this period of 2017, total revenue grew by 4.2% and comparable sales in the U.S. by 2.7%. Despite these higher hurdles, Walmart has successfully demonstrated that there is significant momentum in its business. Overall revenue grew by a respectable 1.4% (or 2.4% on a constant currency basis) while the U.S. put in another strong performance with total sales up 3.7% and comparable sales up 3.4%.

While the results have been aided by a strong domestic economy, which has increased the purchasing power of many of Walmart’s core customers, there is also a strong element of self-help which has propelled growth. In our view, Walmart has been exceptional at quickly adapting to the realities of modern retailing and its willingness to make investments and foster change have been key to its growth.

Online is one of the areas where Walmart has excelled, as the 43% growth within the U.S. e-commerce business demonstrates. Our data show that over the past 12 months, Walmart has grown its market share in every major online category. Some of this is down to the various strategic acquisitions the company has made, but a lot is also a function of the investments that have been put into the e-commerce business.

The relaunch of the core Walmart.com site is delivering and the improved design, extended selection, and increased range of delivery and pick-up options have been well received. Our tracking data show a rising level of satisfaction with Walmart’s online proposition and, most pleasing, an increased level of traction with younger shoppers. That said, there is more work to do here in making Walmart.com the first port of call for shoppers who are very used to defaulting to Amazon and who are increasingly locked into the ecosystem of the online behemoth.

Making online work for customers has been a key priority for Walmart, but the company is also conscious that online needs to deliver in terms of profitability. On this front, we are impressed with the experimentation on automation and the testing of various last mile solutions for grocery. We believe that Walmart has the skill, financial muscle, and the physical infrastructure to drive profitable online growth in a way that many other retailers, especially grocery players, will struggle to achieve.

Although digital is an important arena in which Walmart must do battle, it has not blinded the company to the vital role of its stores. On this front, the refurbishment of many shops have been well received and have helped to drive up visitation, conversion and spend. While Walmart’s refresh isn’t as radical as Target’s, the remodels are making Walmart a brighter and more enjoyable place to shop – and in which to collect online orders. We also believe that they are helping to elevate and boost categories where Walmart has sometimes struggled for growth, like apparel.

Looking to the near-term future, we believe that Walmart has a very satisfactory playbook for the holiday season. Its customer-centric services, which focus on maximizing convenience for the shopper, will be well received. It will also be able to make gains in categories like toys and clothing, where it has enhanced ranges.

Looking further ahead, Walmart’s place as a dominant force in U.S. retail looks assured. We believe more investments and acquisitions across 2019 will help it remain the leader of the pack.

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Analysis: Macy’s on right track; still has more work to do

After a slightly weaker prior quarter, thanks to some shifts in the promotional calendar, Macy’s is firmly back on track with a very solid set of numbers. Total sales are up by a respectable 2.3%, supported by a very healthy 3.1% uplift in comparables. On the bottom line, net income rose by an impressive 130%.

Last year’s dire comparative results, when total sales dropped by 6.1% and comparables fell by 4.0%, have helped to give Macy’s some uplift. So too has a strong consumer economy. However, neither of these things should take away from the genuine progress Macy’s has made and which has helped it to engineer a better set of results.

Our consumer tracking data also supports the story of an ongoing recovery. This time last year, 59% of Macy’s customers rated their shopping experience as good or very good; this year that figure has risen to 67%. Our data also show that for the first time in over eight years, the number of people saying they will visit Macy’s to do holiday shopping has risen. Along with the good sales numbers, these pieces of evidence underline that Macy’s is succeeding in creating a stronger appeal.

Some of the success has come from the expansion of Macy’s loyalty program, which has brought in a lot of new members, especially at the entry level. This has allowed Macy’s to understand and connect with its less frequent shoppers, effectively keeping the brand on their radar. The rewards also act as an incentive for repeat visitation.

Within stores, there have been some improvements – especially at the so-called Growth50 shops which Macy’s has targeted with increased levels of investment. We have been particularly impressed with the more edited and curated fashion offers within these outlets. It represents a step change from the messy hotchpotch that has traditionally greeted shoppers in older Macy’s stores. With the investment in this first wave of stores paying off, Macy’s now has the confidence to extend expenditure into more shops as it moves into 2019. In our view, this should provide a nice tailwind to sales as Macy’s laps tougher comparatives in the new year.

That said, there is still a lot of work to do with physical stores. We are conscious that Macy’s has a long tail of underinvested-in properties, many of which are underperforming and do not reflect the company’s latest thinking. Some of these can be partially revived by incorporating the off-price Backstage concept. However, we also believe that more decisive action is needed over the medium term – which includes shrinking floorspace and potentially shuttering outlets where the return on investment is not viable.

One the factors that necessitate a reduction in space is Macy’s success in digital, where online sales continue to grow at a good clip. In our view, Macy’s is an often overlooked online powerhouse and we see position this strengthening as it ramps up services like collect in store at dedicated service stations. However, the flip side of this is that, in many locations, Macy’s does not need to carry so many options and choice – especially in categories like fashion. As such, the right-sizing of its store estate is a natural part of this evolution.

Overall, we are pleased with Macy’s progress. The energy and confidence that have been lacking for so long now seem to have returned. That said, this is only the start of Macy’s journey. A lot more work is still needed to make Macy’s a unique and compelling retail destination.

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Macy’s Q3 earnings beat Street; raises forecast

BY Marianne Wilson

A resurgent Macy’s has high hopes for the fourth quarter.

The department store giant on Wednesday raised its annual forecast on the heels of a strong third quarter that included its fourth consecutive quarter of comp-sales growth and amid high hopes for the holiday shopping season.

“The holiday season is when Macy’s truly shines,” said Jeff Gennette, Macy’s chairman and CEO. “We have the right merchandise, the right marketing and the right customer experiences in place to deliver a strong fourth quarter.”

Macy’s net income totaled $62 million, or 20 cents per share, for the quarter ended Nov. 3, up from $30 million, or 10 cents per share, last year. Adjusted earnings per share was 27 cents, ahead of the 15 cents analysts had expected.

Revenue rose to $5.40 billion, in line with the Street, from $5.28 billion the previous year. Total same-store sales rose 3.3%, higher than analysts had expected. It was the company’s fourth consecutive quarter of comp-sales growth.

Macy’s has been working overtime to enhance its in-store shopping experience, from partnering with Facebook to bring in nearly 150 online brands to its pop-up concept, The Market @ Macy’s to carving out space in its existing stores for its off-price Backstage concept. It also is rolling out virtual reality technology to help customers to boost customer confidence in furniture purchases.

“Our strategic initiatives are gaining momentum and delivering results,” said Gennette. “We have the right merchandise, the right marketing and the right customer experiences in place to deliver a strong fourth quarter “Another double-digit quarter from our digital business and a strong stores performance combined to help us exceed expectations. We continue to see an improved trend in brick and mortar across the fleet with particularly strong results from our Growth50 stores.”

Analyst Neil Saunders, managing director of GlobalData Retail, commented that consumer sentiment towards Macy’s has definitely improved, and that the firm’s consumer tracking data also supports the story of an ongoing recovery.

“Our data also show that for the first time in over eight years, the number of people saying they will visit Macy’s to do holiday shopping has risen,” he said. “Along with the good sales numbers, these pieces of evidence underline that Macy’s is succeeding in creating a stronger appeal.” For more of Saunders’ commentary, click here.

For the full year, Macy’s said it now expects earnings per share to fall within a range of $4.10 to $4.30, up from $3.95 to $4.15. It also narrowed its forecast for same-stores sales to climb between 2.3% and 2.5%, compared with a prior range of 2.1% to 2.5%. Estimates for net sales narrowed to an expected increase of between 0.3% to 0.7%, compared to the previously estimated flat 0.7%.

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