Walmart (WMT +2.16%) is expecting an unusual end to its wild fiscal year. It suffered a slight growth slowdown in its fiscal 2021 third quarter, mainly due to the end of much of the federal government's emergency economic stimulus. But the results from the period, which ended Oct. 30, included other welcome surprises for investors, highlighted by rising profit margins both in stores and online.
The world's biggest retailer has a unique window into consumers' day-to-day attitudes thanks to its massive selling platform that generates over $500 billion in annual revenue. With the benefit of those insights, CEO Doug McMillon and his executive team explained during Tuesday's fiscal Q3 conference call why the chain is optimistic about the holiday quarter, despite the major risks created by COVID-19 and slumping economic growth.
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Not your average fourth quarter ahead
"Q4 will feel different from past years as customers shop differently and shopping events are spread out. E-commerce and omnichannel penetration continue to accelerate, and we're in a good position to serve customers this holiday season." -- CFO Brett Biggs
Walmart's results through late October show that the retail industry is still healthy. Despite the lapsing of federal stimulus measures and a delayed back-to-school season, sales growth stayed strong at 6% compared to 9% last quarter. The chain noted solid demand in high-margin areas like home furnishings, toys, and consumer electronics.
These surges imply robust growth for the core holiday shopping period ahead. But executives say those gains might look different than in previous years. Consumers will be batching shopping trips as the pandemic rages on, and celebrations might be more muted as people follow social distancing recommendations.
Still, Walmart expects widespread holiday activities to close out 2020. "We do believe families want to decorate, celebrate, and enjoy food and gifts," McMillon said. "They want a sense of normalcy, and our traditions help bring some joy and comfort to this difficult year."
Positioned for success
"Despite the unique challenges this year, Walmart's financial position remains rock solid and our strong performance reinforces the advantages of our [omnichannel retailing] strategy." – Biggs
Management listed several reasons why they aren't issuing a short-term outlook, including the ongoing surge in COVID-19 cases, and questions around future federal stimulus support and economic growth trends. Financial flexibility is important in this environment, which helps explain why Walmart has been conservative with its stock buybacks this year and has focused on improving profit margins.
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The good news is that the company is ready to handle record holiday sales volumes, even if demand tilts heavily toward online shopping. The chain has converted more than 2,000 stores into digital fulfillment hubs this year and can scale that up over the next few weeks as needed.
The e-commerce shift will make events like Black Friday look different in 2020, mainly by making them more online-centric and lacking in customer traffic spikes of the magnitude seen in past years.
"With the importance of social distancing in mind," McMillon said, "we planned several holiday shopping events so customers can enjoy special items and pricing over a longer period of time and shop in the way that's best for them."
Shoppers have rewarded Walmart for providing that flexibility throughout most of this year. That's why leaning on its multi-channel selling strategy in the holiday quarter looks like a win-win approach from both a competitive standpoint and with respect to boosting customer satisfaction and loyalty.
