Global retailer Walmart reported fiscal Q2-2019 financial performance that reinforced positive consumer sentiments in Q2, while reaping the benefits of stepped-up investments in store associates and in Omni-channel customer fulfillment capabilities. Executives also stressed good weather and a more confident U.S. consumer as fueling better than expected sales in the quarter. Walmart

Financial performance highlights for the recent quarter included:

Total Revenues increasing 3.6 percent on a constant currency basis reaching $127.8 billion in Q2. Walmart U.S. revenues grew 4.5 percent, noted as the best revenue performance in more than ten years. Within the U.S., fresh food category sales led to the best comparable sales performance in nine years

Operating income declined by 3.7 percent, primarily attributed to a $4.5 billion net loss from the sale of 80 percent of Walmart Brazil and cumulative foreign currently translation losses.

Walmart’s U.S. Ecommerce sales were reported as increasing by a 40 percent growth rate in the quarter. That is far better than the 23 percent growth rate experienced during the all-important 2017 holiday fulfillment quarter.

Of particular interest to our reading audience, Inventories were down $1.6 Billion, nearly 3.4 percent in the quarter, while achieving record sales performance in the U.S.. The retailer’s CFO noted to analysts that even with strong U.S. performance, store, online and supply chain teams were able to reduce comparable store inventory levels by 70 basis points.

The global retailer was confident enough to increase its prior forecast for financial performance for the remainder of 2018, including 3 percent same-store sales growth for Walmart U.S., while maintaining prior guidance of a continued 40 percent increase in Ecommerce net sales.

Investing in Interconnected Shopping Experience

Similar to what Supply Chain Matters highlighted in a prior commentary focused on the Q2 financial performance of home improvement retailer Home Depot, Walmart has also begun to garner benefits from multi-billion-dollar prior investments in augmenting the interconnected shopping experience for both in-store and online. Noted was that the presence and operation of in-store ‘pickup towers’ for online orders will reach 900 by the end of this year. The retailer reported activation of online grocery pickup and delivery capabilities at more than 18000 locations. Automated picking capabilities related to grocery pickup are also being piloted at a Walmart Super Center in New Hampshire.

Selection of upwards of 1100 additional brands have been added to Walmart.com offered from multiple merchants with senior management indicating more to-come. A number of what was described as more innovative online shopping experiences were described including collaboration with local school districts to help parents easily find back-to-school classroom and student supplies. Jet.com announced plans to open a fresh food fulfillment center offering same-day food delivery for online customers in New York City, along with a subscription service that allows customers to text shopping requests for same-day delivery.

Executives announced that on August 8th, a regulatory body in India issued unconditional approval for the retailer’s prior announced more than 40 percent equity stake in India’s online shopping provider Flipkart. The retailer further recently announced a partnership with enterprise technology provider Microsoft related to ongoing efforts directed at digital transformation.

Inventory and Supply Chain Management Highlights

Walmart CFO Brett Biggs noted continued progress being made with cost transformation, as the retailer was able to leverage operating expenses by 19 basis points in Q2. However, Walmart was not immune to the more explosive growth in U.S. transportation costs dragging on overall margins. The CFO noted that gross profit margins declined by 17 basis points attributed to both pricing actions in certain markets and in increased transportation costs. For the U.S. segment, gross margin was impacted by 34 basis points related to these same factors.

Walmart has also been piloting the use of robots to periodically roam store aisles to automatically scan shelves for on-shelf inventory presence and automatically call for replenishment.

Tariff Impacts

Executives decline to comment in detail about any future financial impacts related to increased U.S. tariffs. Executives reiterated that in all markets where there is a combination of physical store and Ecommerce operations, that the majority of merchandise is sourced domestically.  CFO Biggs indicated that by a wide margin, more merchandise is secured from U.S. suppliers than from any other country.

As our readers are aware, that was not always the case in the past.

Outlook

Walmart’s Q2 financial performance adds to select positive results being reported from other noted retailers this week. While some retailers such as JC. Penny and Macys reported lackluster results, investors have been buoyed by the results of Walmart and Home Dept.

As retailer’s approach the all-important second-half of the year that includes the prime shopping holiday season, the differentiating investments for an interconnected shopping experience for consumers will meet the next crucial test.  Thus far, things are looking up and the industry hope is that the formula may have been found in a differentiated strategy to compete both with Amazon and a share of the combined online and physical store shopping experience.

Stay tuned.

 

Bob Ferrari

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