By Jinjoo Lee
Walmart has always been known for everyday low prices. Add convenience and exciting products to that.
The retailer on Thursday reported strong results: U.S. comparable sales rose 3.8% in the quarter ended April 26 from the year-earlier period, beating Wall Street expectations of 3.7%. Adjusted operating income at Walmart U.S. increased 9.6%, roughly double the pace of revenue growth, largely thanks to healthy growth in Walmarts higher-margin advertising and membership business.
CFO John Rainey said Thursday that, of the company-wide $900 million increase in operating income, about a third came from advertising, membership and data analytics. Revenue from advertising and membership were both up 24% last quarter.
Of course, inflation-battered consumers make it easier for an every-day low price retailer to win market share. The company temporarily reduced prices on 45% more grocery items in April compared with the year-earlier period. Even worse sticker shock at restaurants might be helping grocery sellers more broadly.
But consumers might be coming to Walmart for convenience, too. About 20% of U.S. deliveries slated for the same or next-day arrived in under three hours, management said. Walmarts delivery business now exceeds its pick-up business. Walmart U.S. ecommerce sales rose 22%, accelerating from a quarter earlier.
And most of its market share gains continue to come from households with annual incomes at $100,000 or abovea cohort that prizes convenience.
Quality products are next up on the sticky-customer strategy. Walmart recently launched a premium line of private-label products, called Bettergoods, that will include products like cardamom rose raspberry jam and curry chicken empanadas. The idea is that exciting new products will keep attracting higher-income consumers and encourage more frequent shopping from existing ones.
Grocery delivery is an area that is only getting more competitive, though: Instacart continues to grow at a healthy clip and Amazon last month launched a new grocery delivery subscription service that includes Whole Foods and local supermarkets. Meanwhile, retailers like Costco and Trader Joes have much more established and beloved private-label product lines.
Walmarts steady growth of alternative revenue streams like advertising should help it plow more money back into those initiatives, though. The company expects to spend 3% to 3.5% of net sales on investmentsabove its historical level.
Walmart is riding the coattails of a favorable consumer environment, but it seems to be doing the right things to keep those customers coming back.
This analysis comes from the Journal's Heard on the Street team. Subscribe to their free daily afternoon newsletter here_._
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(END) Dow Jones Newswires
May 16, 2024 12:15 ET (16:15 GMT)
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