Wal-Mart Stores Inc. reported Q2 earnings of $3.77 billion, up from $3.48 billion a year earlier, while total revenue rose 0.5% to $120.85 billion. The company raised its guidance, which boosted shares 4% in pre-market trading.
Wal-Mart said that Q2 same-store sales increased 1.6%—the largest same-store sales increase in four years—thanks to increased traffic in stores and online, as well as its smaller Neighborhood Market grocery stores. That marks Wal-Mart's eighth straight same-store sales rise, and beats estimates of 1% growth from industry tracker Consensus Metrix.
Q2 same-store sales rose 6.5% at Neighborhood Markets, 0.6% at Sam’s Club warehouse stores, and 2.2% internationally. However, with currency fluctuations factored in, international same-store sales dropped 6.6%. Q2 global e-commerce sales on a constant currency basis increased 11.8%.
While Wal-Mart has struggled to grow its vast business, the company is seeing many of its investments pay off. That includes a boost to hourly wages and improvements to its stores, which CFO Brett Biggs said are bringing customers back.
“We believe a contributing factor to the results is our consistent improvement in customer experience,” Biggs said on a conference call Thursday. “Customer surveys indicate that we’re making good progress in providing a better shopping experience with cleaner stores, faster checkout and friendlier service. We’ve also broadened our e-commerce assortment, strengthened our mobile capabilities and expanded Online Grocery to more than 60 markets and nearly 400 locations. While there is still a lot of work to do in executing our multi-year plan, we’re encouraged by the results we’re seeing.”
Wal-Mart’s report comes in contrast to Target’s earnings earlier in the week. The two aren't easily compared, of course—Wal-Mart is vastly bigger, the demographics of their customer bases aren't exactly aligned, and Wal-Mart is a major U.S. grocer while Target’s grocery business is practically an after-thought.
But Target and Wal-Mart are both general merchandisers with significant overlap. Both retailers are working to revamp their appeal to customers, speed up their supply chains, and figure out how to grow e-commerce as Amazon continues to dominate the space. While Target has been known for more appealing store layouts and merchandise, its recent improvements in those areas don’t appear to be paying in quite the same way as similar improvements at Wal-Mart stores. Target CEO Brian Cornell blamed his company's weak earnings on a “difficult retail environment,” but while Wal-Mart is dealing with similar trends, it looks like the company did enough to overcome them in the second quarter—and Target did not.
“This was our eighth consecutive quarter of positive comp sales and our seventh consecutive quarter of positive traffic,” CEO Doug McMillon said on the earnings call. “I’m encouraged by what I’m seeing when I visit stores and pleased with how Greg Foran, our leadership team and our associates are executing our plan to win. Our customer satisfaction scores continue to improve, and the team did a great job of managing the flow of inventory again this quarter. Comp store inventory was down 6.5% and in-stock levels are up.”
The biggest lingering question is whether Wal-Mart can fend off Amazon as the e-commerce giant continues to eat market share. The retailer has decidedly fallen behind in e-commerce, but McMillon said Wal-Mart's e-commerce growth is strong.
“We have built a solid foundation in e-commerce under the leadership of Neil Ashe,” he said, while noting that Ashe would depart at the end of the fiscal year as the company brings on Jet.com founder Marc Lore to lead e-commerce efforts at Jet—which Wal-Mart is acquiring for $3 billion—and Walmart.com.
McMillon said Jet is key to the company’s omnichannel strategy, but many experts have questioned how the deal will help Wal-Mart scale its e-commerce. Some analysts say Wal-Mart has little to show for its other massive investments in Silicon Valley and predict that Jet won’t bear much fruit for Wal-Mart either.
“Maybe they can handle Jet, but I don’t see any indication of that,” Howard Davidowitz, chairman of retail consulting and investment banking firm Davidowitz & Associates Inc., told Retail Dive. “What makes anyone think that for Wal-Mart—a company that has failed miserably in the challenge of the retail market online—this is going to work?”
Others posit that Jet could help Wal-Mart push beyond the top of its current addressable market—and evolve its customer base by attracting higher-income shoppers.
For now, Wal-Mart has done enough to impress investors and shoppers alike. But only time will tell if the company's evolutionary omnichannel and e-commerce efforts will pay off in the long run.