TORONTO — Walmart Canada’s performance has bounced back in a big way, which is not great news for this country’s incumbent grocers.
Canada’s largest mass merchant reported a healthy same-store sales increase of 6.7 per cent in the first quarter ended April 30, its eighth straight quarter of gains in Canada after a period of same-store declines. Same-store sales strip out the effect of added square footage on sales performance, and are a key performance bellwether in the retail industry. Store customer traffic grew 4.6 per cent, the retailer said Thursday.
“The performance was driven by improvements in our merchandise assortment and price investment, which led to strong customer traffic growth,” chief financial officer Brett Biggs said during the retailer’s quarterly call for analysts and investors.
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The news follows an industry report this month that the mass merchant had made strategic price cuts in the first quarter on packaged goods to take on grocery discounters such as No Frills.
“Our e-commerce business also continued to grow nicely with the expansion of online grocery in the greater Toronto area,” Biggs added. “Even as e-commerce investments continued, our ability to leverage expenses led to growth in operating income that outpaced sales growth.”
The retailer, which does not break out full financial numbers for its international units, said net sales in Canada rose 8.6 per cent and operating income was higher than in the same period of last year. The average transaction size was up 2.1 per cent.
In the meantime, the retailer gained 100 basis points in market share for the 12-week period ended April 16, according to Nielsen, thanks to growth in food, consumables, health and wellness and infant categories.
“Grocers in Canada continue to grapple with the growth of Walmart Canada in discount groceries, and the increasing appeal of Costco Canada’s narrow selection of grocery product items to middle- and higher-income households,” Keith Howlett, analyst at Desjardins Securities, said in a note to clients on Thursday.
“The growth in industry square footage has plateaued, with the battle shifting to same store sales growth and margins.”
Howlett believes Walmart, which features a large grocery department at 317 of its Canadian stores, will want to test market its smaller grocery concept in Canada in the next three years, the 35,000 to 45,000 square foot Neighborhood Market.
Grocery chains are getting particularly competitive about prices, with Sobeys slashing prices on selected goods at its Quebec IGA stores last month. Recently, Loblaw president Galen Weston predicting prices will drop in categories where consumers are more price-sensitive, particularly at discount grocery stores.
Overall food prices were up 3.6 per cent year over year in March, according to Statistics Canada, after rising 3.9 per cent in February.
Warehouse retailer Costco is scheduled to report results next week after months of strong growth; same-store sales its Canadian stores climbed 10 per cent in
February, nine per cent in March and seven per cent in April.
Wal-Mart Stores Inc. reported first-quarter earnings of US$3.08 billion on Thursday, or US90 cents per share, compared with profit of US$3.34 billion (US$1.03), a year earlier. Excluding one-time items, earnings were US98 cents, significantly topping than analyst mean estimates of US88 cents, according to Thomson Reuters. Sales rose to US$115.9 billion from US$114.8 billion.