Wal-Mart’s (WMT, Financial) first quarter results were not so interesting since it failed to meet the Street’s expectations. It was mainly because of factors such as cold weather conditions and cuts in the food stamp benefits, in November last year.
Delving deeper
Net revenue for the quarter stood at $115 billion, an uptick of 0.8% over last year. On a constant currency basis, revenue from the U.S., the biggest segment, grew 2% to $67.85 billion and that of international operations rose 3.4%. However, international sales declined, on a reported basis, mainly because of unfavorable currency movements.
Same store sales in the U.S., a key metric for any retailer, decreased 0.2%. Although average purchase size grew 1.3%, store traffic was a matter of concern as severe weather conditions kept customers away from stores. People wanted to stay at home and order the required items online.
Therefore, it resulted in higher online sales. Wal-Mart’s e-commerce business climbed 27% over the prior year as customers prefer to have their orders delivered at their footstep instead of walking up to the stores.
This was probably the reason why the company witnessed a 1.4% drop in U.S. traffic and 0.2% decline in that of Sam’s Club. Nonetheless, increased membership fee led to an overall increase in revenue from Sam’s Club.
Strengths in focus
Despite stiff competition from its peers and dollar stores, Wal-Mart has strengths which should help in its future growth. Firstly, its growing online business should help in driving revenue higher. The company’s initiatives to improve its e-commerce operations should be helpful. Also, the retailer’s entry in the money transfer business should bear fruits.
Moreover, Wal-Mart’s entry into the organic food market is quite an interesting move. Since people have become increasingly health conscious, they look for healthier and natural food options. Hence, it should lead to higher store traffic. Also, it has introduced attractions such as video game trade in program which is expected to attract the young population. Therefore, it is eyeing different customer demographics by strengthening a variety of segments.
Most important strength in focus for Wal-Mart is its smaller format stores which witnessed a same store sales increase of 5% in the first quarter. Efforts into these smaller stores, including Neighborhood Market stores and Express stores, should pay off in the long run. These stores are easier to access, even during colder winter conditions, since these are located in the urban areas. With plans of a total of 270-300 new store openings during the year, the company’s future looks bright.
Ending thoughts
Despite a large number of problems faced during the quarter, the retailer managed to register an increase in its top line. Also, its efforts should start bearing fruits as customers flock in for their regular needs as well as for organic food. Although the company provided a lackluster outlook for the second quarter, its strengths in new format stores and online business is something to rely on. Therefore, investing in Wal-Mart should be rewarding in the long run.
