Weak Asda sales drive down Walmart’s international income
Slow sales at Asda and other non-US retailers owned by Walmart have driven down the corporation’s international operating income by almost 30 per cent in the second quarter.
In second quarter results released today, Walmart said that overall operating income was also down 2.9 per cent, as it lowered international sales growth guidance. Revenue was up 1.8 per cent to $130.4bn (£107.5bn).
The corporation said that Asda’s net sales had increased 1.3 per cent during the quarter, while like-for-like sales rose 0.5 per cent – helped, it said, by a later Easter this year. Asda’s like-for-like sales for the first half overall declined 0.3 per cent.
Walmart’s gross profit rate in the UK declined, which it blamed on lower margins on fuel sales and higher-margin products, alongside “price investments” and customer uncertainty over Brexit.
Despite overtaking Sainsbury’s to become the second-largest UK supermarket earlier this year, Asda has struggled with a declining market share in recent years.
Asda also suffered a blow in April when a proposed merger with Sainsbury’s was blocked by the UK’s competition regulator over fears it would result in higher prices for customers. The deal would have created the largest UK supermarket chain.
Responding to the supermarket’s results, Asda chief executive Roger Burnley said he was “under no illusions as to how challenging this market remains for all retailers”, adding: “we must continue to maintain our relentless focus on delivering a consistently trusted experience for our customers and having the most efficient operating model possible.”
CMC Markets analyst David Madden pointed out that although Walmart had “cited Brexit jitters for [Asda’s] underwhelming performance”, rivals Lidl and Aldi are continuing to expand, showing that “shoppers are becoming savvier.”
“The lower profit margin at Asda is concerning, but is typical of the current climate,” Madden said. “Walmart is considering an IPO for Asda as a way of getting rid of the group, but seeing as the British supermarket sector is only trundling along, I doubt it will be on many investors shopping lists’.
Walmart’s US retailers have seen much stronger sales, with US comparative sales up 2.8 per cent and online sales up 37 per cent.
In a statement released with Walmart’s results, president and chief executive Doug McMillon said the business “continue[s] to have momentum”
“Although we face macroeconomic and political challenges in some of our markets,” he continued, “our teams continue to find innovative ways to serve customers and deliver solutions that make shopping easier.”