NEW YORK  - Sheer size means Walmart can do things lesser retailers can’t. One of them is aggressively cut prices in order to win over customers. The $290 billion grocer’s sales growth for the most recent financial quarter defied the overall slump that hit smaller competitors in December. The gap is likely to widen even in a weakening economy.

Walmart’s 4.2 percent rise in U.S. same-store revenue for the three months ending Jan. 31 beat analysts’ estimates of around 3 percent, according to I/B/E/S data from Refinitiv. A few factors accounted for the boost. The early release of a government food-assistance program helped. But more simply, it made some stuff cheaper, which helps woo shoppers. Its U.S. customers spent 3.3 percent more per visit, but strip out the cost of goods, and Walmart made 30 cents less per $100 they paid.

The retailer is also no slouch when it comes to online. E-commerce sales rose more than 40 percent, noted Chief Executive Doug McMillon, but again, that’s driven partly by cutting prices to keep up with Amazon. Walmart signaled that the losses in e-commerce will rise this year but online sales for the year are expected to increase around 35 percent.

Elsewhere in the world of retail, things look bad. The U.S. industry had one of its worst performances in almost a decade in December, according to the Commerce Department. But Moody’s noted that the online and grocery categories continued to see momentum and expects to see U.S. retail sales grow between 4.5 percent and 5.5 percent this year.

Walmart’s challenge is that it’s trying to invest while also making its wares cheaper – and also fixing up some glitches in India, where it bought Flipkart for $16 billion in its biggest acquisition to date. That constrains its potential profitability – the company expects operating profit to fall slightly in 2020. But running more than 11,300 stores around the world brings Walmart certain advantages: It can squeeze suppliers in a way that smaller operators struggle to copy.

Walmart’s valuation of 21 times next year’s forecast earnings, according to Eikon, puts it at a 25 percent premium to the food and staples retailing sector. That’s no accident. If the economy softens, the strong will continue to eat the weak.

CONTEXT NEWS

- Walmart reported on Feb. 19 that fourth-quarter revenue rose 1.9 percent year-over-year to $139 billion. Sales in the United States on a comparable basis increased 4.2 percent, excluding fuel.

- Online U.S. sales increased 43 percent compared with the same period a year earlier.

- Walmart reported $3.7 billion of earnings, or $1.27 per share, compared with $2.2 billion or 73 cents per share in the same quarter a year ago.

- Earnings per share adjusted for one-offs was $1.41, beating analysts’ expectations of $1.33, according to I/B/E/S data from Refinitiv.  

(Editing by John Foley and Amanda Gomez)

 

The author is a Reuters Breakingviews columnist. The opinions expressed are her own.

(( jennifer.saba@thomsonreuters.com ; Reuters Messaging: jennifer.saba.thomsonreuters.com@reuters.net ))

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