Walmart's Tepid U.S. Growth Amid Wet April Damps Enthusiasm

(Bloomberg) -- Walmart Inc. held its ground during an unseasonably wet first quarter, but it wasn’t enough to soothe investor concerns as competition online heats up.

Comparable sales at U.S. Walmart stores grew 2.1 percent in the three months ended April 30, the company said Thursday, just shy of analysts’ estimates. Customer visits had the slowest growth in more than a year, and while the retail giant said business has picked up in recent weeks, it didn’t assuage shareholders. The stock fell as much as 2.6 percent.

“Traffic and the U.S. comparable sales were softer than expected,” Chuck Grom, an analyst at Gordon Haskett Advisors, said by phone. “People are glass half-empty on the stock right now, so the bears grab that and run with it.”

Poor weather also buffeted Home Depot Inc. last quarter. At Walmart, it compounded a challenging overhaul abroad that has kept Chief Executive Officer Doug McMillon busy in recent months. The world’s biggest retailer generates most of its profits and sales in the U.S., and its heavy spending to lower prices and expand its online business has investors on edge.

Another factor weighing on the stock Thursday: Kroger Co., the second-biggest U.S. grocer, made a deal with British e-commerce outfit Ocado Group Plc to strengthen its offering through automated warehouses and home delivery. The food fight is getting fiercer, after Amazon.com Inc. said this week it would offer its millions of Prime members discounts of 10 percent on hundreds of items at Whole Foods Market locations.

Walmart shares fell 1.2 percent to $85.14 at 11:48 a.m. in New York. Through Wednesday’s close, the stock had already dropped 13 percent this year following two years of gains.

Online revenue in the U.S. rose 33 percent last quarter, better than the holiday quarter’s subpar performance of 24 percent -- but below the 40 percent pace the company had forecast for the full year.

To better compete, Walmart just unveiled a redesigned website that’s more personalized, and in the coming weeks will introduce a site featuring more upscale apparel from department-store chain Lord & Taylor. It’s also brought its online grocery curbside pickup service to 1,400 stores, with an eye to reach 2,100 by the end of the year.

Wet April

Walmart’s main business remains brick-and-mortar, and the unseasonable weather kept people from visiting stores in April, lowering demand for summer items.

“We never do like to blame the weather, but in this case it was unseasonably cool and wet,” Chief Financial Officer Brett Biggs said in an interview. “That impacts some of the seasonal categories. What you see when you have prolonged wet weather is that people consolidate their trips. Since the weather moderated, the categories that were challenging have come back.”

Walmart’s adjusted earnings amounted to $1.14 a share in the fiscal first quarter. That beat analysts’ average projection of $1.12. The gross profit margin narrowed 15 basis points, which was better than most analysts had expected. Still, selling and administrative expenses rose almost 5 percent in the quarter, due in part to Walmart’s decision to raise minimum hourly wage earlier this year.

One bright spot was the Sam’s Club warehouse chain, whose comparable-store sales increased 3.8 percent, sharply above analysts’ estimates, thanks to an improved offering of fresh food and higher online sales.

The company’s recent moves include combining its British chain Asda with J Sainsbury Plc, uniting the U.K.’s second and third-biggest supermarket chains in a transaction worth about $10 billion. Less than two weeks later, Bentonville, Arkansas-based Walmart inked its biggest-ever deal to gain a majority stake in India’s Flipkart Group, striking a blow against Amazon, which has spent billions to gain customers in the world’s second most-populous nation.

The Flipkart deal should help position Walmart in a fast-growing market, but for now it risks crimping earnings that are already under pressure from rising food and transportation costs in the U.S. Gas prices have also risen 17 percent this year, which could prompt Walmart’s lower-income shoppers to spend less on each trip or even come into the stores less often.

“With gas prices on the rise, they may have a more difficult time” next quarter, said Neil Stern, senior partner at consultants McMillan Doolittle.

--With assistance from Brandon Kochkodin

To contact the reporter on this story: Matthew Boyle in New York at mboyle20@bloomberg.net.

To contact the editors responsible for this story: Anne Riley Moffat at ariley17@bloomberg.net, Cecile Daurat, Kevin Miller

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