Strengthening performance sets up Walmart ahead of key holiday trading

Date : 14 November 2019

We review Walmart's third quarter results and the outlook as it moves into its most important trading period.

Walmart's key numbers

  • Walmart's total revenue in Q3 increased by 2.5% to $128.0bn
  • Sales in its US stores increased by 3.2% and by 0.7% at Sam’s Club
  • US comp store sales increased by 3.2%, and by 6.6% on a two-year stacked basis
  • US ecommerce sales increased 41%
  • Sam’s Club comp sales were up 0.6%
  • International net sales increased by 1.3% to $29.2bn, and were up by 4.8% on a constant currency basis
  • Operating income decreased by 5.4% to $4.7bn

Commenting on the results, president and CEO, Doug McMillon, stated,

"Looking ahead, we're prepared for a good holiday season. Our integrated offering with stores and ecommerce delivers value and convenience for our customers. Our associates are working hard to ensure we succeed, one customer, one interaction at a time.

Source: IGD Research

Our view: ecommerce results validate omnichannel approach

Ecommerce growth of 99%, 65% and 41% in China, Mexico and the US respectively, demonstrate the importance of the omnichannel driven strategy that Walmart is pursuing. Another great performance by the retailer this quarter was underpinned by strengthening ecommerce results. Even in markets such as the UK, where trading conditions are challenging, ecommerce continues to be a highlight. The focus on developing an omnichannel business also enables Walmart to optimise its significant physical network. Its US performance will be particularly pleasing for outgoing CEO Greg Foran, with the baton handed over to John Furner earlier this month.

US: ecommerce powers domestic performance

Walmart’s US comp sales results improved in the quarter, underpinned by a strong performance within its US ecommerce business. Central to this was the ongoing rollout of its grocery ecommerce programmes, with pickup extended to more than 3,000 locations and delivery available from over 1,400 stores. During the quarter it also launched new initiatives including Delivery Unlimited, a new delivery membership programme, and ‘InHome’ delivery went live in three cities.

US: building a better Walmart.com

While the online grocery business is strong, McMillon is challenging the business to improve the performance of its online general merchandise business, Walmart.com. Key areas of focus include range development through its third-party marketplace, building stronger customer relationships and executing on the fundamentals. Walmart needs to be able to optimise the repetitive online business that is driven through its online grocery business to build a more profitable Walmart.com operation.

International: China leads international growth

Walmart delivered positive comp sales growth in seven of its 10 key markets, led by its performance in China. This is the first time that China has held this position for several years, with net sales up 6.3% and comp store sales up 3.7%. Ecommerce sales were up 99%, driven by the continued expansion of Walmart Daojia and JD Daojia, while Sam’s Club delivered double-digit comp sales growth.

Mexico was also a star performer. Comp store sales increase by 3.8% while ecommerce sales were up 65%. Improvements to the marketplace range, increasing the number of in-store kiosks and improved delivery speeds, facilitated by the opening of two new fulfillment centres this year, all contributed to this strong online performance.

International: the opportunity in India

The retailer also noted the growing importance of its Flipkart business in India which was acquired one year ago. Its ‘Big Billion Days’ sales event drove 75% growth in new customers, while its PhonePe payments app is acquiring more than three million new customers per month. With more than 55m active users, the retailer is looking at ways to monetise this, including developing financial services. Recently, the business consolidated its Myntra and Jabong fashion-focused platforms into a single platform at Myntra.com. This simplifies the business and provides a single point of focus going forward.

International: challenging conditions in key markets

However, it experienced challenging conditions in several markets. These included the UK, where concerns over Brexit impacted consumer spending, and in Chile, where its business has been impacted by civil unrest. In the UK, net sales decreased by 0.6%, with comp store sales down 0.5%. In Canada, net sales increased by 0.9% with comp sales up 1.9%. While the business saw solid growth in fresh and grocery, sales in general merchandise and clothing were softer. Improving this part of the business will be a priority for its new CEO.

Sam's Club: enhancements on ranging, value and fresh driving membership growth

Simplifying the business and improving the merchandising mix continue to be the key focus areas at Sam’s Club. The retailer is benefitting from improvements made to the fresh offer, including enhancements to the value proposition, a programme which has been rolled-out to half of its clubs. These enhancements are helping it to drive membership growth and improve renewal rates.

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