Wal-Mart (WMT, Financial) recently released fourth-quarter 2016 earnings that topped Wall Street estimates due to solid online sales. The world’s largest retailer also reported its highest same-store sales increase since July 2012. The multinational retailer operates massive department stores and warehouse chains with more than 11,600 outlets across 28 nations.
A look at the numbers
During the earnings release, Wal-Mart President and CEO Doug McMillon said, "We had a very solid fourth quarter with U.S. comp sales growth of 1.8% and U.S. e-commerce GMV growth of 36%." The company registered revenues of $130.9 billion, surpassing the consensus estimate of $130.6 billion. Wal-Mart recorded earnings of $1.30 per share, again beating analyst estimates of $1.29 per share.
Positive comps
In the recent past, Wal-Mart has managed to deliver positive comps in Wal-Mart U.S. This is a significant development for the company considering it has been posting negative comp sales since the third quarter of fiscal 2013. The company has made an effort to modernize its stores to attract greater footfall and increase customer spending. This has helped boost traffic for the last eight straight quarters.
Comparable store sales in the U.S. rose 1.8% in the fourth quarter, ahead of the estimates of 1.3%. This is attributable to the 1.4% improvement in traffic and 0.4% rise in tickets. As far as Sam’s Club is concerned, comp sales increased 2.4%, driven by the rise in traffic and tickets.
Focus on e-commerce
E-commerce has been another area where Wal-Mart has been investing heavily. This is bearing results for the company. The company managed to draw more shoppers to its online platform, improving its online sales by 29% in the fourth quarter. Sales were also aided by the holiday shopping season. The company’s strategy to reduce prices to bolster web services is effective and is helping it compete against Amazon (AMZN, Financial). Over the years, Amazon, the largest online retailer, has gained huge customer loyalty. As such, it is not easy for Wal-Mart to take on its dominance in this field. However, the traditional retailer is doing fairly well in improving its online operations.
As per research firm Euromonitor, in 2016, Wal-Mart’s online sales accounted for a third of the total online sales in the U.S. This made the company move ahead of eBay (EBAY, Financial) to hold the second spot in online retailing in the country. EBay’s online sales accounted for 7.8% of total online sales in the U.S., compared with 7.4% in 2015. Wal-Mart still has a long way to go as far as global sales are concerned however. The company’s online sales accounted for only 3% of its global sales, or about $14 billion, in comparison to Amazon, who recorded $94 billion in global net product sales.
Wal-Mart has reshaped its online shopping operations. In the past couple of years, it has been on a buying spree. It made some essential investments in buying a few smaller companies with online business. McMillon said, “We're moving with speed to become more of a digital enterprise and better serve our customers.”
Wal-Mart invested more than $3 billion in acquiring Jet.com. The acquisition is expected to help Wal-Mart target and attract young and affluent customers. Other than Jet.com, the company purchased online footwear retailer ShoeBuy.com in a $70 million deal and Moosejaw, an online retailer specializing in outdoor apparel and gear, for $51 million.
Last word
The company has high expectations for its online operations and is hopeful this segment will drive growth over the coming years considering the trend in favor of e-commerce. In addition, the company has spent $2.7 billion in higher wages and training for its workers, through which it expects to improve customer service. Wal-Mart is taking several steps in driving its results and strengthening its financials. It will be interesting to see how the numbers turn out for the first quarter of fiscal 2017.
Disclosure: I do not hold any position in the stocks discussed in this article.
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