Walmart Profit Margins Fall for 1st Quarter

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On Thursday Walmart released data showing that their profit margins fell during the first quarter of the year.

Walmart’s stock fell 1.6 percent, while their total revenue increased to $122.7 billion, up 4.4 percent beating forecasts by analysts of $120.5 billion.

Long-term Strategy

Weighing on their margins is increasing stiff competition from Amazon.com. Their efforts in combating competitors is a long term strategy with large investments in e-commerce.

According to Walmart’s U.S. CEO, Greg Foran they are comfortable with their strategy, demand for the quarter is what they saw last year.

Investments in re-designing their Walmart.com site and the addition of new brands in e-commerce helped to accelerate sales on their online grocery division, boosting growth by 10 to 20 percent.

Sales in e-commerce grew 33 percent, compared to the previous three months of 23 percent. They expect to be on track with a 40 percent increase in U.S. ecommerce sales for the year.

Walmart is in the process of acquiring a 77 percent stake in Flipkart, an e-commerce Indian firm for $16 billion, its biggest deal to date. To accelerate growth they have entered into a partnership with Lord and Taylor adding more brands.

They are also planning to sell a large stake in Asda Group Ltd to J. Sainsbury in the UK. Agreements to sell Walmart Canada and Walmart Chile banking operations have also been reached.

Sales in U.S. Stores Boosts Growth

Sales in U.S. stores boosted growth which rose 2.1 percent, this did not include fuel. Walmart is the only retailer to record four straight years of U.S. growth.

Boosting their growth were the U.S. grocery business and high end branded drug prices on e-commerce.

Stiff Competition From Rival With Robots

Walmart is facing stiff competition in the grocery sector with Kroger Co. who made a deal with online grocery Ocado Group, a British company who use robot-staffed warehouses to deliver groceries.

International Sales Beat Predictions

On a constant currency basis international sales increased 4.5 percent at $28.3 billion. Beating the average analyst predictions of $1.12, adjusted earnings were $1.14 per share excluding special items.

Managing director of FX strategy at BK Asset Management, Boris Schlossberg said that pressure on earnings will come from the recent multibillion dollar acquisition of Flipkart in the coming years. Keeping faith in Walmart’s long-term strategy by investors will be the key.

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