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What’s Driving Walmart’s Impressive US Sales?

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Comps continued to grow

Walmart’s (WMT) US business has continued to impress. The segment’s comps have now increased for 18 consecutive quarters, which is encouraging given the heightened competition in the grocery space from the likes of Amazon (AMZN), Costco (COST), and Target (TGT). The segment has generated improved traffic in the past 17 quarters.

During the fourth quarter of fiscal 2019, Walmart’s US segment’s net sales increased 4.6% YoY (year-over-year) to $90.5 billion. Its comps rose 4.2% despite tough YoY comparisons driven by a 3.3% rise in ticket size and a 0.9% increase in traffic. e-Commerce sales contributed 1.8% to its comps growth rate.

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On a two-year stacked basis, Walmart’s comps rose 6.8%—its best rate in the past nine years. Meanwhile, its traffic was up 2.5% on a two-year stacked basis. Walmart stated that the government’s early release of Supplemental Nutrition Assistance Program assistance benefited the segment’s comps by 40 basis points.

By product category, Walmart’s grocery sales marked mid-single-digit growth driven by sustained growth in food and consumables. General merchandise comps also recorded mid-single-digit growth driven by growth across all categories. The health and wellness category reported low-single-digit growth in comps driven by higher prices of branded drugs.

Outlook

We expect Walmart’s sales in its US business to continue to grow at a healthy rate in the coming quarters driven by sustained growth in traffic. Its management expects the segment’s sales to increase 2.5%–3% (excluding fuel) in fiscal 2020. Its digital sales are expected to contribute meaningfully to its comps growth rate led by the expansion of its grocery pickup and delivery services.

However, tough competition could remain a drag as Target continues to expand its digital offerings. Meanwhile, Costco continues to invest in pricing to widen the value gap with its peers.

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