Walmart (WMT +0.39%) is enjoying plenty of operating momentum at just the right time. The retailing titan recently revealed faster revenue growth as its shift toward multichannel selling continues to pay dividends for investors.
Following the report, CEO Doug McMillon and his team held a conference call with analysts to put the results into perspective and provide details about preparations for the key holiday shopping period that just began. Below are some highlights from that presentation.
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It was a good quarter overall
"The sales environment in the U.S. continues to be positive, while internationally it's softer, and we're responding appropriately," McMillon said.
The big-picture growth story involves modestly better trends than investors saw back in August. Sales gains in the U.S. strengthened, with customer traffic growth combining with higher average spending to push comparable-store sales growth back up above 3%. Trends look even better when you zoom out a bit. Executives noted that on a two-year basis, revenue has risen by 6% or more in five of the past six quarters, with Q2 being the sole exception.
At the same time, Walmart's international segment was again pressured by pockets of weakness. In some places, like the U.K. and Chile, that slump was tied mainly to disruptions in the wider economies. Other spots, like Canada, involved execution stumbles that management is eager to fix over the next few quarters.
Pressing Walmart's advantages
"Our scale and financial resources continue to enable us to test and evaluate a wide range of technologies, some of which have already led to high-returning capabilities," CFO Brett Biggs said.
Management drew a direct link between the stepped-up rate of investments and innovations it has launched in recent years and market share gains against rivals like Kroger (KR 1.24%). That disruptive strategy continued during the third quarter through the rollout of the chain's unattended in-home grocery delivery service and the expansion of its delivery membership program.
The upgrades are supporting customer traffic and lifting the brand in the eyes of consumers while also generating solid financial returns. "Each of these new offerings leverages the supercenter [store] in ways we only imagined a few years ago," Biggs said. Management intends to press this advantage into next year, as evidenced by plans for $11 billion in capital expenditures in fiscal 2020.
Challenges ahead
"As we start Q4, we recognize that we have some potential hurdles ... nonetheless, we're ready for a great holiday season," Biggs said.
The holiday quarter is always filled with competitive threats as national peers all bring out their most aggressive pricing. Those challenges will be compounded this year by a shorter selling period and by the fact that last year's Q4 was lifted by shifts in the timing of Supplemental Nutrition Assistance Program benefit payments.
Executives still think they're in a great position to win more than their fair share of industry sales, thanks mainly to Walmart's positive momentum in the fresh food department and its hit multichannel fulfillment initiatives.
The company noted some opportunities for improvement, especially on the nonfood product categories like apparel and home goods. A better competitive showing there would speed up sales gains while also lifting gross profit margin. Still, heading into Q4, the consumer staples giant is in the best position it could hope for as it aims to reach the 3% comps gain it has targeted for 2020, which would translate into its best annual growth in years.
