TGT Target Corp

E-commerce sales rise but profit falls as retailer spends big to compete with Amazon

By Sarah Nassauer and Joshua Jamerson 

Wal-Mart Stores Inc. drew more shoppers to its U.S. stores but the pace of visits slowed and profits fell as the retailer spends heavily to catch up with Amazon.com Inc.

Same-store sales in the U.S. rose 1.2% for the quarter, the ninth straight increase, and foot traffic rose 0.7%, down from the previous quarter's rise. Meanwhile, e-commerce sales were up 21%, boosted by the purchase of online retailer Jet.com in September.

Wal-Mart's stock fell 4.4% to $68.24 in early trading, as the revenue gains were less than some analysts projected and traffic slowed slightly compared with the previous quarter. On a conference call with reporters, executives said the strong dollar continued to eat into overseas revenue.

Heading into the critical holiday season, Wal-Mart executives said they are optimistic that consumer spending will stay relatively solid, as it has in recent quarters, even in the wake of a tense U.S. presidential election.

"I don't see big changes out there," said U.S. chief Greg Foran on a call with reporters. "Business as usual would be my summation."

Wal-Mart is investing heavily to fend off Amazon's play for more retail turf. It will have added over a 1,000 online grocery pickup locations at stores by the end of next year. It also made the biggest ever e-commerce startup purchase when it bought Jet.com, installing Jet founder Marc Lore as head of its e-commerce business. E-commerce sales added 0.5% to the U.S. same-store sales figure, the largest contribution to date, said executives. Jet.com added six weeks of sales to the results.

Wal-Mart has also slowed the pace of new store openings, instead investing to improve existing stores. The world's largest retailer has raised employee's' wages, added management training programs and trimmed inventory.

The increase in U.S. same-store sales was driven by strength in its general merchandise and health and wellness business, while its grocery business continued to lag amid food-price deflation.

"We view the same-store sales growth as evidence that Wal-Mart's investment in labor, e-commerce and marketing its value message are working. However, some investors may be disappointed that traffic and comps decelerated slightly" from last quarter, said Buckingham Research Group in a note. The number of shoppers heading to U.S. stores rose 1.2% in the previous quarter.

The results from Wal-Mart come a day after rival Target Corp. said sales in existing stores fell slightly, but it signaled sales could return to growth over the holiday season. While department stores and some apparel makers reported slower sales in recent weeks, Home Depot Inc., Best Buy Co. and others said sales are brisk ahead of the holidays. Earlier this week, October retail sales logged their best growth rate in nearly two years.

Retailers are in a race to log as many sales as possible before Christmas, a stretch that can make or break a retailer's financials for the year.

Charlie O'Shea, lead retail analyst at Moody's, said Wal-Mart is poised for strong holiday sales in the fourth quarter as the company "leverages its store network to handle online orders, especially via its buy-online/pick-up-in-store capability, as well as increasing benefits from Jet.com."

Amazon currently has about 3% of total U.S. retail sales compared with a 7% share held by Wal-Mart, according to a recent estimate from Citi.

For this year's holiday shopping season, Wal-Mart is focused on improving in-store pickup of online orders and working to speed checkout times, said Mr. Foran.

"Holiday helpers," store workers wearing Santa hats and passing out candy, will be on-hand during peak hours to open registers or direct shoppers to the shortest checkout line. "We know that our front end, particularly in our big trading stores can get a bit clogged" at the register, said Mr. Foran.

Over all, Wal-Mart posted a profit of $3.03 billion, or 98 cents a share, compared with $3.3 billion, or $1.03 a share, a year ago. The company had projected per-share earnings in a range of 90 cents to $1.

Revenue edged up 0.7% to $118.2 billion, below analysts' projections for $118.69 billion.

Wal-Mart also lifted the bottom end of its full-year guidance range for adjusted profit, now expecting $4.20 to $4.35 a share. Previously, the low-end was pegged at $4.15.

Write to Sarah Nassauer at sarah.nassauer@wsj.com and Joshua Jamerson at joshua.jamerson@wsj.com

(END) Dow Jones Newswires

November 18, 2016 02:47 ET (07:47 GMT)

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