WMT Walmart Inc

By Sarah Nassauer and Anne Steele 

Wal-Mart Stores Inc. and Home Depot Inc. on Tuesday showed they can still find ways to entice shoppers to their physical stores, despite a continuing consumer shift toward online buying.

Both big box retailers reported strong sales over the holiday season, unlike other brick-and-mortar competitors such as Target Corp. and Macy's Inc., showing that some retailers are managing to capitalize on a strengthening economy.

Wal-Mart said more shoppers came to its stores and spent more when they did, as the company invested heavily to lower prices and improve customer service. "Versus two years ago, our stores are in better shape than they were and you're seeing the results of that," said Wal-Mart's chief financial officer, Brett Biggs, in an interview.

On Tuesday, the world's biggest retailer reported that sales in U.S. stores open at least 12 months rose 1.8% in the quarter ended Jan. 31, the 10th consecutive quarter of gains. But the strength of the company's U.S. store business continues to come at the expense of profits, which fell 18% in the quarter. The retail behemoth is investing billions to raise U.S. store worker wages, lower prices and expand e-commerce sales to better compete with Amazon.com Inc.

Home Depot's same-store sales rose 5.8% in the fourth quarter, driven by a strong housing market that prompted customers to start bigger home-improvement projects and replenish their toolboxes. U.S. home values have recouped all of the losses of the recent housing bust, in September eclipsing a record set in July 2006, according to data from S&P CoreLogic S&P Indices.

The retailer also pointed out that while its online sales are growing, nearly half of those orders were fulfilled through in-store pickup. "While we are seeing significant growth in our online business, our stores have never been more relevant," Home Depot's chief executive, Craig Menear, said during a call with analysts.

Wal-Mart and Home Depot's performance contrasts with many other brick-and-mortar retailers, which are challenged by shoppers gravitating to less-profitable online shopping and discounters offering low prices.

Macy's longtime Chief Executive Terry Lundgren said Tuesday that record U.S. car sales indicate consumers have spent a bigger portion of their budget on big-ticket items lately. "At some point in time you've got to believe that everybody's going to have a brand-new car," Mr. Lundgren said, after the department store chain reported its eighth straight quarter of falling comparable-store sales. "There's dollars that are going to be freed up for other categories of spending."

Investors have become wary of the retail market after Target, Macy's and Kohl's Corp. reported weak holiday sales. Warren Buffett's Berkshire Hathaway Inc. dumped $900 million worth of Wal-Mart shares at the end of 2016, nearly exiting the stock, according to federal filings.

In 2016, while retail sales rose across the board, online retailers took much of the spoils. During the year, spending rose 11% at online retailers and fell almost 6% at department stores, according to Commerce Department figures.

Macy's, which is closing stores and laying off thousands of staffers, on Tuesday reported a 2.1% drop in comparable-store sales in the latest quarter. Its profit fell 13%. Macy's said it raised $673 million from selling real estate and would continue to explore options for its properties.

The retailer on Tuesday said its problems could be fixed, even as shoppers increasingly do their purchasing online.

"There's lots of concern out there with our ability to bounce back, but internally we've got a lot people on our team who have seen this movie or some version of it," Mr. Lundgren said on a conference call. Although he will step aside as CEO next month, he said Macy's "made strategic decisions in 2016 that will carry us through."

Wal-Mart's sales grew in most of its categories, particularly clothes and health products. Revenue rose 1% to $130.9 billion, and excluding currency swings, it said revenue would have climbed to $133.6 billion.

The company has worked to strengthen its e-commerce capabilities, purchasing Jet.com Inc. for $3.3 billion last September. Online sales, however, grew more slowly in the fourth quarter after a previous quarter of acceleration, rising 16% in its first full quarter that included Jet.com sales, compared with a 21% uptick the previous quarter. That quarter included some sales from Yihaodian, the Chinese online retailer Wal-Mart sold last June, said a spokesman.

Overall for the period that ended in January, Wal-Mart reported a profit of $3.76 billion, or $1.22 a share, down from $4.57 billion, or $1.43 a share, in the year-earlier quarter.

Wal-Mart executives said that the first quarter of fiscal year 2018 has thus far been "soft," in part because the government has worked to prevent fraud by delaying tens of billions in early tax refunds that often go to low- and middle-income shoppers, Wal-Mart's core consumer.

"Nothing has markedly changed about the consumer overall," said Mr. Biggs. In past years the Internal Revenue Service delayed a smaller number of refunds and spending was pushed into the following quarter, he said.

In a research note, the Buckingham Research Group called Wal-Mart's sales figures strong, "but the question that remains unanswered in our minds is when can sales growth overcome investment spending and translate into earnings growth?"

--Joshua Jamerson contributed to this article.

Write to Sarah Nassauer at sarah.nassauer@wsj.com and Anne Steele at Anne.Steele@wsj.com

(END) Dow Jones Newswires

February 21, 2017 16:57 ET (21:57 GMT)

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