Walmart profit drops 5% as small-format stores, Web sales grow

Walmart (NYSE: WMT) executives focused on the bright spots—online and small format success—in an otherwise lackluster quarter. Weaker than expected profits and flat sales are expected to continue through the spring.

Walmart's profit dropped 5 percent even as online sales worldwide rose 27 percent in its fiscal first quarter, reflecting the company's heavy investment in e-commerce to compete with Amazon (NASDAQ: AMZN).

"We continue to be excited about our e-commerce businesses and the rapid growth we're experiencing in this area," said Charles Holley, Walmart CFO and executive VP, in an earnings call. "We continue to make progress through site enhancements, search capabilities and fulfillment, and we expect these improvements to continue."

To support the company's surge in Web sales, Walmart opened two dedicated e-commerce fulfillment centers, one in Pennsylvania and the other in Brazil.

Other digital investments for the world's largest retailer during the quarter include an e-receipts program, updates to its mobile pharmacy app and a new ordering app for its Walmart to Go convenience store prototype.

Online grocery shopping is another area where Walmart is investing and hopes to see strong growth in the months ahead. The company said it is encouraged by the early results of online grocery orders from multiple pick-up points across 34 stores in Denver. Later this year, Walmart plans to test a standalone grocery pick-up center where shoppers can retrieve their online orders the same day.

Walmart's smaller stores, Neighborhood Market, Walmart Express and Walmart to Go, were another bright spot during the first quarter. Neighborhood Market comparable sales jumped 5 percent and traffic rose 4 percent. April marked the 46th straight month of same-store sales growth for the concept. The company is now accelerating the opening of these small-format stores which attract more shoppers making quick, midweek grocery trips. Walmart will build 270 to 300 small stores in the next 12 months, doubling its initial forecast of 120 to 150.

While online growth and small-format stores were a winner for Walmart during the quarter, overall sales fell short of expectations. Walmart's total net income for the quarter ended on April 30 totaled $3.60 billion, down 5 percent from $3.78 billion a year ago. Revenue rose 0.8% to $114.96 billion, missing analysts' estimates of $116 billion. Sales at its stores that were open at least a year fell 1.4 percent.

"Like other retailers in the United States, the unseasonably cold and disruptive weather negatively impacted U.S. sales and drove operating expenses higher than expected," said Walmart CEO Doug McMillon, in a statement.

For more:
-See this Walmart press release
-See this Walmart earnings call transcript

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