Wal-Mart sales come up short, even as e-commerce surges

A Wal-Mart tractor trailer truck departs the company's distribution center in Washington, Utah, on Sept. 23, 2016. : Bloomberg photo by George Frey.

Wal-Mart Stores Inc.’s brick-and-mortar sales fell short of expectations last quarter, even as its acquisition of internet startup Jet.com gave a much-needed jolt to e-commerce orders.

Sales at U.S. stores open at least a year rose 1.2 percent in the third quarter, the company said in a statement Thursday. That was just shy of the 1.3 percent predicted by analysts and marked a slowdown from the previous quarter. Total revenue also missed estimates, hurt in part by currency headwinds.

The sluggish sales raised concerns for investors, despite Wal-Mart coming through on its pledge to energize its e-commerce business. Wal-Mart’s $3 billion purchase of Jet.com in September helped fuel a 21 percent gain in online sales last quarter, an acceleration from the 12 percent gain in the second quarter. But at its physical stores, a historic streak of food deflation put pressure on the chain.

“We are not satisfied,” Chief Executive Officer Doug McMillon said in the statement. “We will continue to change and pick up speed to reach our longer-term aspirations.”

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Wal-Mart shares fell as much as 4.3 percent to $68.32 in New York, the biggest intraday drop since May. The stock had climbed 16 percent this year through Wednesday’s close, lifted by improving performance. That outpaced the 6.5 percent gain of the Standard & Poor’s 500 Index.

Revenue increased 0.7 percent to $118.2 billion in the third quarter, which ended Oct. 31. Overseas, the strong dollar weighed on sales, turning a 2.4 percent increase at its international unit into a 4.8 percent decline. But profit exceeded projections. Earnings amounted to 98 cents a share, topping the 96 cent estimate, helped by a better tax rate than analysts were anticipating.

Wal-Mart also raised the lower end of its forecast for the year. The Bentonville, Arkansas-based company now expects annual earnings of $4.20 to $4.35 a share, excluding some items. It had previously set the bottom of the range at $4.15.

Chief Financial Officer Brett Biggs said it is too early to tell how the incoming Donald Trump administration will affect its business. The president-elect’s pledge to renegotiate trade deals with Mexico and China could have a major impact on Wal-Mart, which imports many of its products from China and has a large business in Mexico.

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“It is way too early to speculate on anything that might happen with the president-elect,” Biggs said. “When policies change or shift, we will be ready to respond to those and make sure we do what is right for the company.”

Grocery prices across the country have dropped on a year-over-year basis for 10 straight months, a streak of deflation not seen since 1960. That’s been good for consumers, but it’s brought headaches to Wal-Mart, the largest seller of groceries in the U.S.

Eggs and beef have have grown especially cheap, making competition fiercer between supermarkets. The run of deflation has squeezed profit margins and sent shares of some low-cost chains tumbling.

Since taking the helm in 2014, McMillon has boosted pay for U.S. workers, tried to improve Wal-Mart’s grocery quality and spent billions on its online operations — aiming to gain ground on Amazon.com Inc. He also is pushing to lower Wal-Mart’s prices, clean up stores and take better care of customers.

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E-commerce sales growth had been slowing, and Wal-Mart has been trying to shore up the business. The Jet.com deal gave Wal-Mart access to the startup’s technology and management, as well as contributing more than a month worth of its sales to the retailer’s third quarter.

“E-commerce was a highlight,” Biggs said in an interview. “We expect to continue seeing that momentum.”