What’s happening: Shares of Walmart Inc. moved lower on Tuesday despite the big-box retailer’s third-quarter results surpassing expectations.
What happened: The sharp upturn in demand for essential items, triggered by panic buying amid the pandemic-related lockdowns, continued into the third quarter. With the continued increase in online spending, Walmart’s US ecommerce sales surged by a whopping 79% during the quarter.
Investors were unable to cheer the results due to concerns around Amazon’s latest moves hurting Walmart’s sales.
How were the results: The discount department store reported higher sales and earnings for the third quarter, surpassed estimates for both metrices.
- Revenue grew 5.2% to $134.7 billion, exceeding the consensus expectation of $132.2 billion.
- Adjusted earnings climbed 15.5% to $1.34 per share, also beating the consensus view of $1.18 per share.
Why it matters: Walmart’s results were boosted by growth in the ecommerce business, despite a decline in covid-19 cases in many regions during the late-summer period. However, as with other retailers, Walmart too continued to feel pressure of higher coronavirus-related expenses, incurring around $600 million in extra costs during the third quarter.
Walmart took several initiatives to fuel its online sales while lowering the dependence on its brick-and-mortar business. With this change in focus, the company recently sold its majority stake in the Japanese Seiyu supermarket chain in a $1.65 billion deal.
The company is looking to expand its business in new areas, including pet care which saw the launch of its Walmart Pet Care platform. The retail giant also announced its subscription service Walmart+ in September, touted as Amazon's Prime subscription rival. However, management did not announce any metrics around this service during the latest earnings call.
Walmart joined other retailers in commencing their holiday season sales as early as October to give customers the opportunity to avoid the last-minute rush.
Meanwhile, Amazon announced the launch of its new online pharmacy service, giving consumers another reason to join its Prime service. Investors are concerned about Amazon’s new service positing some stiff competition to Walmart and hurting the retailer’s drug sales.
How shares responded: Walmart’s shares fell 2% to close at $149.37 on Tuesday following the release of quarterly results. The stock has added around 10% over the last three months.
What to watch: With coronavirus cases rising in the US and in other regions of the world, the company has reinforced safety precautions, limiting the number of people allowed inside its stores. Investors will keep an eye on the company’s sales and expenses incurred due to the resurgence of infections. Markets will also monitor how Walmart’s supply chain responds to increased demand, with consumers again starting to stock up on toiletries and groceries. Investors will also look out for news related to the progress being made by Amazon’s newly launched service.