According to the news report by Bloomberg, Walmart Inc. reported its fourth quarter performance and it was all good news. Amid the retail industry’s disappointing results, Walmart posted its best holiday sales in at least the last decade.
Comparable sales in Walmart stores across the US, which is one of the key measures of performance, went up by 4.2% in the last quarter, topping market consensus by massive 1%.
Charlie O’Shea, a Moody’s analyst, stated that the last quarter of 2018 has been a blockbuster for the biggest retailer in the world.
These results are a breath of fresh air for the consumer sector, since most other retailers posted disappointing results for what is supposed to the biggest earnings time of the year.
Investors had expected the holiday season to see a surge in spending. However, by mid-December, many retailers announced that sales had weakened because Black Friday sales at the start of the season had commenced earlier than normal. Which basically meant that shoppers had finished their holiday shopping earlier than usual too.
According to data released by the US Commerce Department last week, retail sales in the country dropped by 1.2% in December vis-à-vis the previous month. This was the biggest drop in sales since 2009. In fact, the drop was so big that many analysts questioned whether online sales had been undercounted.
Walmart’s shares went up as high as $103.93 before closing the day at $102.20 per share. The retailer’s stocks have already gone up by 7.3% year-to-date, vis-à-vis the 11% increase in the S&P 500 Index.
According to Brett Briggs, the Chief Financial Officer of Walmart, the company’s gamble on toy sales worked. The retailer, like many of its competitors, had made a big push to grab Toys ‘R’ Us customers for the holiday season. To this end, Walmart boosted its online toy assortment by 40%. The company also hosted thousands of in-store events that let children try out new toys. The strategy was successful and the sale of toys contributed to the company’s strong results.
While Briggs did not provide exact sales figures for toys, he did say that general merchandise sales (which includes toys, home décor, apparel as well as electronics) went up by mid-single-figure percentage points for the fourth quarter.
The biggest growth was seen in the company’s e-commerce division, where online sales went up by 43%, which was on par with market estimates.
Despite such a strong performance, there were a few worrying indications in the company’s earnings report. It was higher prices rather than an increase in in-store foot traffic that helped push up gains.
Additionally, a portion of the gains were also related to timing – government food-stamp payments that were due in February were released early, in December instead. This helped boost in-store sales by 0.4% during the quarter.
Another worrisome sign was that profit margins shrank slightly for the fourth quarter. This is because labor and transportation costs went up. Profits were also impacted by the continued investment in expanding the company’s e-commerce division. Typically, online sales have lower profit margins than in-store sales because of fulfillment costs.
Walmart also stated that the guidance for full-year sales and profits in 2019 was going to stay the same as the company had forecast in October last year. Same-store sales growth in stores in the US were expected to be in the range of 2.5% to 3%. This was a lower forecast that the previous year’s guidance.
Retailers are expecting consumer demand to be lower in 2019, especially if the US government actualizes its threat to China to increase tariffs on goods imported.