Walmart's U.S. EBIT Decline Overshadows Online Reacceleration

(Bloomberg) -- Walmart Inc.’s mixed first quarter results had traders batting around the stock between plus and minus in pre-market trading but after opening higher, less impressed investors are winning out and sending shares down as much as 2.6 percent. Walmart’s year-to-date decline now totals some 14 percent vs the S&P 500 Index’s gain of 2.1 percent and competitor Kroger Co.’s decline of 7.6 percent.

The first quarter print did nothing to change Morgan Stanley analyst Simeon Gutman’s opinion of Walmart or his belief that the "rising cost of doing business will inhibit EBIT dollars/margins," even as comparable-store and online sales continue to grow, he wrote in a note.

The world’s largest retailer reported a 3.1 percent decline in first quarter U.S. EBIT. The headwinds pressuring profitability don’t seem to be letting up any time soon, according to Gutman. Increasing freight and transportation costs will probably act as a hurdle "for the next few quarters," while heightened competition in grocery and the shift to e-commerce will block "a turn in core profitability over the medium-term."

Gutman’s view on competition is supported by recent actions. Earlier today, Kroger announced a partnership with British online grocer Ocado Group Plc, whereby Ocado will license its home delivery technology to the U.S. grocery chain. The move is "definitely a warning shot that Kroger is serious about online retail and grocery delivery,” said Jennifer Bartashus, an analyst at Bloomberg Intelligence.

Meanwhile, Amazon.com Inc. continues to flex its muscle with its announcement May 16 that Prime members will get discounts at Whole Foods Market, the upscale supermarket that Amazon bought last year.

To contact the reporter on this story: Janet Freund in New York at jfreund11@bloomberg.net.

To contact the editors responsible for this story: Catherine Larkin at clarkin4@bloomberg.net, Brad Olesen, Scott Schnipper

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