The emergence of new concept stores such as dollar stores and warehouse retailers have posed a major challenge to all the big box retailers, by providing extremely low prices for all the daily products. Also, online retailer such as Amazon (AMZN, Financial) has been a threat to retailers such as Wal-Mart (WMT, Financial) since it provides the ease of getting the ordered goods delivered at the doorstep.
However, Wal-Mart has also made a number efforts to overcome the tough situation and outpace all the competitors. It reported its second quarter numbers, which beat the Street’s estimates and enabled its share price to soar.
Into the numbers
Revenue jumped 2.8% to $120 billion over last year’s quarter. This was higher than the analysts’ estimate of $119 billion. Excluding the effect of currency fluctuations, the top line rose 3.4% over last year. Segments such as the international segment and the e-commerce segment were the key performers. International segment grew 5.3% over last year and the e-commerce segment surged 24%.
E-commerce business is actually doing very well because of the growing popularity of online shopping, which makes it easier for people to shop at the click of a button. Despite tough competition from the online giant Amazon, Wal-Mart managed to grow this segment significantly. Further, with the levy of sales tax on Amazon’s products, it margins have shrunk and made its products costlier. Hence, Wal-Mart got an edge over it. Also, Wal-Mart provides services such as booking online and picking it up from the store.
The retailer’s U.S. segment too increased 2.7% despite comparable store sales remaining flat. This is because customer traffic had declined by 1.1%, offset by an increase in average ticket size by 1.1%.
Earnings for the quarter dropped 1.6% to $1.21 per share, at par with the analysts’ estimates. The bottom line was affected by higher healthcare costs as well as increased investments in the e-commerce business.
Stiff competition
Although Wal-Mart managed to meet the mark, when it came to quarterly numbers, it faces stiff competition from other similar companies. Dollar stores have been a point of concern since they offer huge discounts to customers and are conveniently located in the neighborhood. However, Wal-Mart too shifted to a similar concept store. Its neighborhood stores are smaller in size and are located in densely populated urban areas. It makes it easy for people to access it for all their small needs and weigh less on the cost structure. In fact, it posted a same store sales growth of 5.6% as store traffic increased by 4%. Further, the retailer plans to open a total of 180 to 200 such stores during the year.
Another competitor for Wal-Mart is Costco Wholesale Corporation (COST, Financial), which provides competition to the company’s Sam’s Club segment. Sam’s Club also registered a growth of 2.3% over the prior year. But its same store sales were flat during the period. On the other hand, Costco is doing very well with a 7% jump in the top line, as it focuses on its international and online operations.
Summary
Thus, Wal-Mart is undergoing a lot of competitive pressures in all the segments. However, it continues to battle it through its strategic moves and a growing online presence. Further, its initiatives to open small neighborhood stores was one of the greatest moves and should continue to benefit the company. Therefore, this retailer is worth a look.
