Picture: REUTERS/EDGARD GARRIDO
Picture: REUTERS/EDGARD GARRIDO

New York — Walmart jumped on Tuesday after reporting coronavirus-related stockpiling led to a surge in quarterly sales, underscoring the company’s strong position amid widespread carnage in the US retail sector.

Comparable-store sales, a key retail metric, increased 10% for US Walmart stores in the period, compared with the 8.6% estimate compiled by Consensus Metrix. That’s the fastest pace of growth in almost two decades. Profit in the quarter also beat expectations.

Walmart’s results reinforce how Americans’ spending priorities rapidly shifted to staples and away from discretionary items with the onset of the Covid-19 pandemic, before pivoting back to items such as office equipment, sporting goods and toys as the quarter wore on. The report for the three-month period ended April 30 sparked stock advances from peers such as Target and Costco.

Walmart CFO Brett Biggs said the quarter was a roller-coaster ride that started strong in February before a flurry of stockpiling in mid-March. Growth slowed in early April but re-accelerated after government stimulus cheques arrived. “It really was unprecedented,” Biggs said in an interview. “It was several quarters within a quarter.”

The shares rose as much as 3.4% to $131.99 on Tuesday. The stock had gained 7.4% this year before Tuesday, compared to a drop of 8.6% for the S&P 500 index.

Walmart’s move to build up its e-commerce capacity paid off, with online sales in the US rising 74% in the quarter. That outpaces the average analyst estimate of 51%. To counter rival Amazon’s popular Prime service, the company is rolling out subscription-based grocery delivery and recently introduced a two-hour home delivery service in some markets.

The online pickup and delivery business increased four-fold at times during the March peak period, Biggs said, bringing in many new customers. This included older Americans who may not have shopped much online before.

Profitability concern

Despite the dramatic sales growth, there’s concern that higher sales of everyday items such as food and toilet paper, instead of higher margin discretionary items, will reduce margins. Fulfilment costs also erode the profitability of online orders.

Walmart said gross profit margins narrowed due to a shift to lower margin categories and web sales along with markdowns and other investments to lower prices. But the e-commerce business still lost less money than it did in the year-ago quarter.

“The results were clearly positive, particularly on the profitability side,” John Tomlinson, an analyst at M Science, said by phone. “There were not too many holes to pick in the quarter. The question is, where do we go from here after the initial stock-up activity?”

Investors will be tuning in closely to see whether the boom in spending will hold up or lose steam. Walmart said there’s “significant uncertainty” surrounding the length and intensity of the coronavirus’s effect, prompting the retailer to withdraw its full-year guidance, which was given just three months ago.

Still, the company said its “business fundamentals are strong”.

Walmart incurred incremental costs of nearly $900m related to its response to Covid-19. It listed the measures it has put in place to help protect shoppers and consumers, from reduced hours and enhanced cleaning procedures, to Plexiglas sneeze-guards and masks and gloves for employees.

The safety of Walmart’s huge US workforce is also under scrutiny amid reports that some employees have died from Covid-19. That workforce is growing, with the company hiring 235,000 new employees during the period.

Walmart also said it will shutter the Jet.com online business, which it acquired four years ago — an unsurprising move as Walmart has been integrating Jet into its broader web unit over the past year.

Bloomberg