Walmart Q3: making progress on the transformation

Date : 17 November 2016

We review Walmart’s third quarter results and how it's progressing against its strategic plan.

Our take: ecommerce accelerating as Walmart takes a different approach to growth

If I was to highlight one key takeaway from the results, it would be the acceleration in ecommerce growth to 20.6%, from 11.8% in Q2 and 7.0% in Q1. An element of this was expected as the retailer did benefit partially in the quarter from the acquisition of Jet.com. However, what is important is that the deal with Jet, and the strategic partnership with JD.com in China, signifies a major change in approach towards ecommerce at Walmart and how it thinks about growing this part of the business. For the US, international and Sam’s Clubs businesses it’s been another quarter of steady and disciplined progress, focused on executing their respective strategic plans. The results demonstrate that these are all on-track.

Q3 revenue up 0.7% to $118.2bn

Walmart’s total revenue increased by 0.7% to $118.2bn in the third quarter, with net sales at its US stores and Sam’s Club (ex-fuel) increasing by 2.5% and 1.8% respectively. International sales were down 4.8%, impacted by foreign currency (up 2.4% on a constant currency basis). Operating income decreased by 10.4% to $5.1bn, reflecting on-going investments in people and technology.

US: grocery market deflation impacts comp store sales

Comparable store sales in the US increased by 1.2%, its ninth consecutive quarter of positive sales growth, although slower growth that Q2. Traffic increased by 0.7%. The US business continues to benefit from the significant investment it has made in its people, in terms of wages and training, and the focus which has been placed on improving the in-store environment and processes to support better product availability and lower inventory levels. A program of significant price cuts has also been key in driving traffic to the stores.

Its Neighborhood Market format delivered a strong performance, with comp store sales up 5.2%, although as with the overall business, slower than the previous quarter due to market deflation which negatively impacted food comp sales. Growth in consumables was led by beauty/cosmetics and pet, reflecting the focus which it has placed on these categories in terms of improving the range and driving innovation.

US: ecommerce growth driven by marketplace, grocery roll-out and Jet.com

With Walmart seeing an acceleration in total ecommerce growth to 20.6%, the US business delivered a stronger performance than international markets. This reflects the significant increase in range which has been driven by its marketplace initiative, adding 8m items in the quarter, the continued roll-out of online grocery ecommerce and the contribution from the acquisition of Jet.com.

US: leveraging Jet.com’s technology to lower prices and build trust

Work is underway on integrating Jet.com following its acquisition earlier this year. Teams are focusing on optimising their combined fulfillment networks, utilising Walmart's scale in areas such as shipping and sharing their respective ranges. However, the key element of the deal is that it provides Walmart with access to Jet’s proprietary technology and dynamic pricing which enables shoppers to lower prices as they shop. This is particularly important for online grocery, where Walmart is aiming to win the basket, and where the technology can help lower costs, and prices.

International: strength in focus markets

Walmart international continues to deliver solid results, with sales up 2.4% on a constant currency basis. Ten of Walmart’s 11 key markets delivered positive comp store sales, with seven of those growing comps by more than 4%. Growth was led by Brazil, with comp store sales up 8.1%, driven by a 7.6% increase in ticket, Walmex, up 7.0%, and China up 1.6%. Comp store sales increased by 1.1% in Canada. In the UK, net sales declined by 3.8%, with comp store sales down 5.8%. The priority remains on driving an improved customer experience and building sales momentum by simplifying the offer, improving product availability and making strategic investments in service and price.

International: positioning to win in China through strategic investments

Walmart and JD.com, China’s largest ecommerce company by revenue, are already making significant progress following the signing of a strategic partnership in June. For Walmart, the alliance greatly expands its opportunity in China ecommerce and provides its stores and Sam’s Clubs with traffic from JD.com’s significant base of online customers and extensive same-day delivery network to serve its customers. During the quarter, Sam’s Club launched a flagship store on JD.com, and a Walmart Global import store on JD.com Worldwide. Walmart has also made an investment New Dada, China’s largest local on demand logistics and grocery O2O, seamless e-commerce platform, which is enabling two-hour delivery from many of its stores.

Sam’s Club: improved performance as it executes on strategic plan

Sam’s Club delivered an improved performance, with comp sales (ex-fuel) up 1.4%, and membership income up 2.3%. Ecommerce contributed approximately 60 basis points to the comp sales growth. However, operating income was pressured by the investments it’s making in people and technology, although during the quarter it completed the roll-out of ‘Scan & Go’, its mobile checkout and payment solution which is helping to transform the club experience. The business continues to focus on executing its strategic plan which is centred on transforming its merchandise offer, including its private label range which is now being built around the sole Member’s Mark brand, growing membership income and leading in digital.




Stewart Samuel, Program Director, IGD Canada
Based in Canada, Stewart heads up all of IGD's research and coverage on Walmart globally. He is also responsible for shaping IGD's research program across North America. Contact Stewart at [email protected] for further insight on the region.
@Stewart_IGD