Wal-Mart gives tepid outlook as grocery race heats up

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Wal-Mart Stores Inc., racing to fend off Amazon.com Inc. and a fresh attack from European grocery discounters, gave a lukewarm earnings forecast for the third quarter, a sign that heavy spending aimed at maintaining its edge is taking a toll.
The shares slid recently after the retail giant said that profit will be 90 cents to 98 cents a share in the period. Analysts had projected a number at the top of that range.
The outlook tempered enthusiasm after Wal-Mart posted its best grocery sales growth in five years last quarter, helped by the end of a record-setting bout of food deflation. The grocery business accounts for more than half of Wal-Mart’s revenue, but it’s under attack like never before. Notably, Amazon is acquiring organic-food purveyor Whole Foods Market Inc. in a bid to become a national grocery powerhouse.
“Amazon is an unbelievably good competitor,” Greg Foran, head of Wal-Mart’s US stores, said. “I don’t know for sure what they are going to do. But I like the fact that they are a good competitor and that Aldi and Lidl are out there because it lifts our performance.”
The shares declined 3.3 percent to $78.33 in New York, the biggest intraday drop in two months.
The downbeat forecast illustrates the high cost of Wal-Mart’s push to catch up to Amazon online. CEO Doug McMillon has channeled more than one-third of the company’s capital spending budget into digital initiatives, like specialised e-commerce distribution centres, up from just 20 percent a few years ago.
“We have to take things that are working and lean into them,” Wal-Mart CFO Brett Biggs said.
Profit margins on online sales are narrower than those for in-store sales, due to the costs of fulfillment. Wal-Mart’s gross profit margin narrowed for the first time in two years, according to Stifel Financial Corp. analyst Mark Astrachan.
US same-store sales rose 1.8 percent in the second quarter, matching the gain projected by analysts. Excluding some items, earnings amounted to $1.08 a share in the period, which ended on July 31. The Arkansas-based company raised the lower end of its full-year earnings guidance to $4.30 a share, with the upper end remaining at $4.40.
The question now is whether Wal-Mart can battle Amazon while also keeping Aldi and Lidl at bay. The German no-frills chains are expanding into the US, targeting the same lower-income shoppers that Wal-Mart depends on most.
Wal-Mart’s investments in e-commerce are helping boost its top line. The US online division saw gross merchandise volume increase 67 percent in the second quarter. Wal-Mart has introduced a simpler way to reorder products bought frequently, and it’s offering discounts on thousands of items purchased online and picked up at a store. “We are saving costs by not paying for last-mile delivery,” said Marc Lore, head of US e-commerce operations. “We will expand that over time.”

Wal-Mart’s Amazon war takes to skies
Bloomberg

Wal-Mart Stores Inc. has opened a new front in its battle with Amazon.com Inc.
The world’s largest retailer has applied for a US patent for a floating warehouse that could make deliveries via drones, which would bring products from the aircraft down to shoppers’ homes.
The machine would fly at heights between 500-1,000 feet, contain multiple launching bays, and be operated autonomously or by a remote human pilot. Amazon was granted a patent for a similar vessel in April 2016. The migration to the skies represents the latest volley in a clash between Wal-Mart and Amazon to grab shoppers’ attention, loyalty and dollars.
Amazon is opening physical stores and agreed to pay $13.7 billion for Whole Foods Market Inc. Wal-Mart, meanwhile, has beefed up its e-commerce business through acquisitions and offers like free two-day shipping.