Walmart stock soars as it predicts 40% online sales growth

11 Oct 2017

1

Wamart Stores Inc on Tuesday forecast a 40 per cent rise in US online sales next year as it ramps up competition with Amazon.com Inc, boosting shares of world's biggest brick-and-mortar retailer to the highest in more than two years.

Walmart also forecast overall net sales would rise by at least 3 per cent in the year ending January 2019, and said it would buy back $20 billion of its shares over the next two years.

Walmart shares rose 4.5 per cent to close at $84.13 on Tuesday, the top driver of gains in the Dow Jones Industrial Average and S&P 500 index.

The company also plans to add 1,000 online-grocery locations - roughly double the current number of sites, which help fill orders from customers buying their food on Walmart.com, the retailer said as part of a forecast issued ahead of its shareholder meeting on Tuesday.

The upbeat guidance reinforced the view that its company-changing bet on ecommerce is beginning to pay off. Chief executive officer Doug McMillon has channelled more than one-third of the business's capital spending budget into digital initiatives like specialised ecommerce distribution centres, up from just 20 per cent a few years ago.

''We are going to lean into places like technology, ecommerce, international stores,'' Walmart chief financial officer Brett Biggs said at the Bentonville, Arkansas company's annual investor meeting which was webcast.

Walmart, which is battling Amazon for market share, has been investing in its online business and letting customers pick up online orders at its 4,700-plus stores.

The company has already started offering free two-day shipping and said on Tuesday it planned to roughly double the locations for shipping online grocery orders. On Monday, it said it would speed up the process for in-store returns of items bought on its website.

Walmart, which expects online sales to hit about $11.5 billion for the fiscal year ending January 2018, reported growth of about 62 per cent for the first half of fiscal 2018, up from 12 per cent in the year-ago period.

With a steady rise in online shopping, Wal-Mart's e-commerce sales growth has been outstripping brick-and-mortar, leading the company to slash new store openings.

The company plans to open fewer than 15 supercenters and less than 10 neighbourhood markets in the United States in fiscal 2019, it said in a statement on Tuesday. That is half the stores it intends to open in fiscal 2018.

''It is clear that Wal-Mart intends to continue to turn up the heat online,'' Moody's Corp analyst Charlie O'Shea said in a note. ''We still believe Amazon's lead in online retail is insurmountable; however, Wal-Mart continues to widen the gap between itself and all other brick-and-mortar retailers.''

''Digital has been a recent highlight for WMT and it expects this momentum to carry into FY '19,'' UBS said in a note. ''Faster growth in (e-commerce) should lead to earnings pressure though, as this operation is likely still several years away from profitability.''

Wal-Mart has introduced a simpler way to reorder products bought frequently, free shipping on orders of $35 or more, and discounts on thousands of items purchased online and picked up at a store.

But the online push has come at a cost: Profit margins on online orders are narrower than those for in-store sales, due to fulfillment expenses. In the second quarter, Wal-Mart's gross profit margin narrowed for the first time in two years.

The company on Tuesday estimated capital expenditures of about $11 billion for fiscal 2018 and 2019.

Grocery competition has increased since Amazon bought Whole Foods and started to cut prices at the upmarket grocer in August.

Walmart forecast fiscal 2019 profit would increase about 5 per cent over its expected adjusted earnings of $4.30 to $4.40 per share for the year ending January 2018.

The new buyback replaces the existing $20 billion program announced in October 2015. In the seven quarters since, Walmart had bought back $15.10 billion worth of shares.

Business History Videos

History of hovercraft Part 3...

Today I shall talk a bit more about the military plans for ...

By Kiron Kasbekar | Presenter: Kiron Kasbekar

History of hovercraft Part 2...

In this episode of our history of hovercraft, we shall exam...

By Kiron Kasbekar | Presenter: Kiron Kasbekar

History of Hovercraft Part 1...

If you’ve been a James Bond movie fan, you may recall seein...

By Kiron Kasbekar | Presenter: Kiron Kasbekar

History of Trams in India | ...

The video I am presenting to you is based on a script writt...

By Aniket Gupta | Presenter: Sheetal Gaikwad

view more