Wal-Mart Stores’ (WMT) Sam’s Club is in the middle of a revamping process aimed at driving sales and profitability for the segment. The company’s efforts to enhance its store offerings and e-commerce initiatives are showing signs of progress, and the segment’s comparable-store-sales (comps) have shown improvement over the past four consecutive quarters.
Walmart’s top line (excluding fuel) rose 2.3% YoY (year-over-year) to $15 billion in fiscal 4Q17, driven by a 2.4% rise in comps (a 1.2% rise in customer traffic and a 1.2% rise in average tickets). Notably, membership income remained flat YoY.
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Sam’s Club faces intense competition from Costco Wholesale (COST), which reported better comps for the last reported quarter. Costco’s comps, excluding the impact of changes in gas prices and foreign exchange rates, rose 3% last quarter. Meanwhile, its revenues from membership fees rose 5.5% YoY to $0.6 billion.
The company’s integrated multichannel shopping experience bodes well with consumers. Club pick-up and the direct-to-home business are showing strong results, as well, with e-commerce sales adding about 80 basis points to comps. Despite lower markdowns and savings from efficient supply-chain, its operating income declined because increased investments in payroll and promotions negatively impacted the results.
Sam’s Club is expected to generate healthy top line results supported by a rise in traffic and average ticket. The company’s e-commerce initiatives are likely to boost comps in the coming quarters with strong results from its club pickup and its direct-to-home business. The management expects comps, excluding fuel, to rise 1.0% in fiscal 1Q18.
However, increased competition from Costco and Amazon.com (AMZN), commodity deflation, and increased investments in prices are likely to pose challenges to the top- and bottom-line performances of the segment.
Notably, ETF investors looking for exposure to the consumer discretionary sector might consider ETFs like the VanEck Vectors Retail ETF (RTH), which invests about 33.1% of the portfolio holdings in Amazon, Walmart, Kroger (KR), and Costco.