Walmart Stores reported better-than-expected U.S. sales for the holiday quarter though margins were squeezed by price-cutting efforts and investment spending.
Same-store sales in the U.S. rose 1.8%, the 10th straight increase and an improvement on the third-quarter gain of 1.2%. Analysts had been expecting growth of 1.3%.
CFO Brett Biggs said comparable sales were up at all retail formats due to a steady improvement in stores, strong growth from e-commerce and a growing contribution from the online grocery business.
“We’ve now seen nine consecutive quarters of traffic growth in our stores,” he told reporters in a conference call. “Clearly, we’re gaining traction.”
E-commerce sales and gross merchandise value rose 29.0% and 36.1%, respectively, in the fourth quarter, while, despite lower food prices, comparable sales rose in Walmart’s grocery business, which accounts for nearly 53% of overall revenue. U.S. store visits rose 1.4%, compared with a year-earlier increase of 0.7%.
Walmart has invested heavily in online shopping, acquiring outdoor retailer Moosejaw and Shoebuy. In the holiday quarter, it also made customer-focused moves such as adding “holiday helpers” at checkouts.
“Brick-and-mortar stores are fighting with e-commerce for sales as more shoppers opt to make purchases from home, and, specifically, shop with Amazon.com Inc.,” MarketWatch noted. “Retailers are looking for ways to drive customers through their doors with service offerings and other attractions that can’t be replicated online.”
But Walmart’s price-cutting and strategic spending contributed to an 8% drop in gross profit margins for the fourth quarter. Operating income from Walmart stores in the U.S. fell 2.5% to $4.99 billion.
“The question that remains unanswered in our minds is when sales growth can overcome investment spending and translate into earnings growth,” Buckingham Research analysts wrote in a note.
For the first quarter of this year, Walmart is forecasting comp sales growth in U.S. stores of between 1.% and 1.5% and earnings per share of $0.90 to $1.00. In the fourth quarter of 2016, it earned $1.30 per share, exceeding analysts’ average estimate of $1.29.