Wal-Mart on Thursday reported lower-than-expected revenue gains for the third quarter as its grocery business continued to be hit by food-price deflation.
Same-store sales in the U.S. rose 1.2%, the ninth straight increase, but analysts had been expecting growth of 1.3%, according to Consensus Metrix. Comp sales had increased 1.5% in the previous quarter.
Wal-Mart posted a 20.6% increase in online shopping sales that added 0.5% to the U.S. same-store sales figure, the largest contribution to date. But pressure on prices lowered comparable sales in grocery by 1.5 percentage points.
“With 55% of Walmart sales coming from grocery, it was hard to escape the pain of food deflation that has bedeviled U.S. grocers for many quarters,” Fortune said.
Wal-Mart CEO Doug McMillon described the quarter as “solid,” noting that “Our e-commerce growth accelerated, operations in the U.S. continued to strengthen and international delivered another strong performance.”
Overall revenue edged up 0.7% to $118.2 billion, below analysts’ projections for $118.69 billion, while profit fell to $3.03 billion, or 98 cents a share, from $3.3 billion, or $1.03 a share, a year earlier.
In trading Thursday, Wal-Mart shares dropped 3% to $69.19. Prior to the earnings release, the stock had increased 23% in the past year.
“We view the same-store sales growth as evidence that Wal-Mart’s investment in labor, e-commerce and marketing its value message are working,” Buckingham Research Group said in a note. “However, some investors may be disappointed that traffic and comps decelerated slightly” from the last quarter.
Wal-Mart’s e-commerce business was boosted in the third quarter by the six weeks in sales from Jet.com, the online retailer it acquired for $3 billion in September. “Wal-Mart is investing heavily to fend off Amazon‘s play for more retail turf,” The Wall Street Journal noted.
The company anticipates U.S. comparable sales will rise 1% to 1.5% in the crucial holiday quarter , which would put it ahead of Target.