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?
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…
The bigger picture: All the more reason to merge.
January retail data from the UK last week was better than expected. Rising food sales will have helped Walmart’s British brand, Asda, to grow last quarter. But continued market share losses to UK number one Tesco and German discount chains Aldi and Lidl will strengthen Asda’s desire to merge with rival Sainsbury’s. An initial decision from UK regulators on the deal is due in April, and will probably require both companies to sell off some stores in order to allow fair competition that doesn’t harm consumers.