What's going on?
The world’s largest company by revenue, Walmart, reported quarterly results on Tuesday that steamrollered investors’ expectations.
What does this mean?
Walmart extended its record of growing sales in existing US stores to 15 quarters in a row by selling 4.2% more than a year ago, higher than investors forecast. The company did a roaring trade in playthings over the holidays, filling some of the Toys R Us-shaped hole – and Walmart also saw bumper sales of food, responsible for half of its total revenue.
Walmart’s burgeoning ecommerce business continued its high growth last quarter – and for the first time, its $14 billion majority stake in Indian etailer Flipkart showed up in earnings. Both these parts of Walmart’s business have lower profit margins than its bricks ‘n’ mortar operations; but this didn’t stop Walmart’s overall quarterly profit from beating forecasts too.
Why should I care?
For markets: Who needs official retail sales data anyway?
Official data released last week showed an unexpected December drop in US retail sales. Walmart could’ve been a major victim – but Tuesday’s good news meant investors bought up its stock, which rose 4%. Investors will keep their eyes peeled for any upward revisions to the December data – but with Walmart and Amazon hitting retail records, there may be several have-nots out there. One early casualty is footwear retailer Payless ShoeSource, which filed for bankruptcy protection on Tuesday just two years after its previous bankruptcy.
Zooming out: Walmart brings the fight to Amazon.
Walmart plans to spend $11 billion on “capital expenditure” this year, up from around $10 billion the last. Big-ticket purchases will be aimed at growing Walmart’s ecommerce business – and hiring thousands of coding whizzes will probably help it better compete with Amazon. Walmart’s US ecommerce growth last year was 10% higher than Amazon’s, but maybe Walmart’s eyes are on the wrong prize: Amazon doesn’t make much profit from retail, instead betting big on cloud computing. Not that that isn’t a pretty expensive game itself. Just ask Google…