Wednesday, 21 August 2019 05:46 GMT
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Wal-Mart profits fall as it ramps investment to fight Amazon




(MENAFN - AFP) Discount retail giant Walmart updated investors Thursday on its latest gadgets and time-saving options aimed at luring shoppers away from arch-rival Amazon, but the efforts come at a cost.

The good news The company's array of investments in e-commerce, store beautification, low prices and higher employee pay are indeed driving higher store traffic and sales.

The bad news Profits fell sharply due to the increased cost of those efforts.

Walmart US, the biggest division at Wal-Mart Stores, scored a 1.8 percent rise in same-store sales in the second quarter compared with the year-ago period, its 12th straight quarter with positive sales in the closely-watched benchmark.

As sales increased, revenues rose 2.1 percent to $123.4 billion.

But net income plunged 23.2 percent to $2.9 billion amid the more aggressive spending on e-commerce and low price investments, as well as costs of $788 million connected to a one-time debt payment.

Despite that decline, executives expressed confidence in Wal-Mart's strategy. They also highlighted an especially strong performance in the US grocery business, which experienced the biggest jump in five years, in part due to price inflation in meat and produce.

Wal-Mart holds the biggest share of the US grocery market, with its network of nearly 4,700 stores that the company says are located within 10 miles of about 90 percent of the US population

But Wal-Mart is girding for a more direct head-to-head battle with Amazon, especially in light of the tech giant's impending purchase of Whole Foods Market, a small by visible presence in the grocery sector.

- Competing with Amazon -

"Amazon are a really strong competitor," Wal-Mart US chief executive Greg Foran said in a conference call with reporters. "Obviously we're keeping an eye on what a strong competitor is doing."

But he said, "We've got a good strategy."

New tech-oriented initiatives include the expansion of a program allowing consumers pick up online orders at more than 900 locations, up from 670 in the prior quarter.

Consumers also now have a tool to reorder their most frequent purchases with a few quick clicks or can utilize automated "pickup towers" to receive goods after scanning in a barcode.

Although the earnings bested analyst expectations, investors were "a bit disappointed" with parts of Wal-Mart's third-quarter profit forecast, according to Briefing.com

Still, the earnings decline also reflected a pullback after Wal-Mart gained 11 percent over the last month, Briefing.com added.

Wal-Mart shares had fallen 2.5 percent to $78.97 at midday.

Neil Saunders, managing director at GlobalData Retail praised the company's investments.

"We note the decline in net income, but believe that some short term erosion is necessary as the business invests in its future."

"In our view, Walmart is a demonstration that traditional businesses can survive and thrive in this era of retail if they are prepared to adapt and evolve," Saunders said.

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Wal-Mart profits fall as it ramps investment to fight Amazon

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