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What Drove Walmart’s Strong US Sales?

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Nov. 15 2019, Published 9:55 a.m. ET

Walmart (WMT) released its third-quarter results yesterday, reporting that its US business sustained its momentum. The company’s US comps beat analysts’ forecast and rose for a 21st consecutive quarter. The impressive performance comes amid fierce domestic competition. The company’s traffic has risen for 20 quarters straight.

During the third quarter, Walmart’s US net sales rose 3.2% year-over-year to $80.2 billion. Its US comps rose 3.2%, beating analysts’ estimate of 2.9%. The segment’s traffic rose by 1.3%, while its ticket size increased by 1.9%. Notably, e-commerce contributed 1.7 percentage points of its comps, with online grocery pickup and delivery services being key growth engines.

Online grocery pickup services are now in nearly 3,100 stores, and 1,400 stores now offer grocery delivery services. Also, Walmart had 1,400 pickup towers at the end of the third quarter.

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Walmart’s two-year-stacked US comps rose 6.6% in the third quarter, and have increased by over 6% in five of the last six quarters. Its US gross margin narrowed by four basis points, reflecting price investments. However, its gross margin beat management’s forecast. The company’s higher mix of private brand sales, along with lower supply chain costs, supported its margins.

Walmart’s US sales by category

In the third quarter, Walmart’s grocery comps maintained their momentum, growing by a mid-single-digit percentage. Strong fresh food, beverage, and pet sales, higher demand for private brands, omnichannel offerings, and value pricing drove its grocery comps.

Meanwhile, the company’s general merchandise comps grew by a low-single-digit percentage. Its home and hardline sales performed well, thanks to higher private brand sales. However, weather-related challenges affected its apparel sales. Walmart’s health and wellness comps grew by a mid-single-digit percentage, boosted by branded drug inflation.

Outlook

We believe Walmart’s US segment could sustain its momentum in the fourth quarter. Expanded grocery pickup and delivery services could boost its comps growth, and value pricing and the company’s focus on key growth categories should support sales during the holiday season.

Management expects the US business to grow 2.5%–3% in fiscal 2020. However, the business may face several headwinds, namely a shorter holiday selling season and tough comparisons. In last year’s fourth quarter, Walmart’s US comps rose 4.2%.

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