In low-growth economy, Walmart Canada's sales still move up

Canada proved to be a bright spot for Walmart in its second-quarter earnings report.

Canada was one of only two key international businesses to see decent gains in sales, traffic and comparable-store sales during the quarter. Overall, Walmart’s profits dropped 15% and the world’s largest retailer cut its earnings outlook on Tuesday.

In Canada, Walmart sales grew 5.4% and traffic was up 1% from a year earlier. Comparable sales rose for a fifth consecutive quarter, up 3.9%.

Mexico was the other star in Walmart’s international business, while the U.K., China and Brazil saw key measures such as same-store sales and traffic fall.

In a recorded message to investors on Tuesday, David Cheesewright, Walmart’s international CEO, called Canada a “solid” performer, adding that it will “play a key role” in back half 2015 performance.

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Walmart Canada managed to see sales growth in “a low growth economic environment”, Cheesewright said, with comparable sales driven by “strong performance” in food, health and wellness, home and toys.

“We’re investing in price and value, as we look for opportunities to lower costs in our business,” he added.

Another bright area for Walmart Canada is e-commerce. Sales grew 40% during the quarter, though Cheesewright noted that overall e-commerce business in Canada remains small (He did not provide sales figures.)

Walmart has been pushing its e-commerce business. In July the company launched an online grocery business in Ottawa, where it now has 11 pickup locations.

Healthy sales, however, don’t appear to be helping Walmart Canada’s bottom line. Its gross profit rate in the second quarter decreased, though the amount was not disclosed.

Cheesewright said that Walmart’s Canadian operating income grew “significantly faster than sales.”

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Walmart aims to keep growing in Canada in the last half of this year and into 2016 by adding new stores.

In February the company announced it would spend $230 million to add 29 Supercentre stores. Most of those were to be conversions of existing discount stores to Walmart’s full-grocery Supercentre format.

In May, Walmart also picked up 13 former Target Canada stores, plus a distribution centre in Cornwall, Ont. Seven of those stores will be reopened by the end of January with the rest opening throughout the remainder of 2016.

Overall, Walmart second-quarter earnings report was a mixed bag: Its investments to overhaul stores in the U.S. are helping to perk up sales, but they're causing more pain to the bottom line than expected.

Profits at the Bentonville, Ark.-based retailer are being squeezed by pay raises for workers in the U.S. and efforts to make its stores cleaner and friendlier and speed up service.

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Walmart, based in Bentonville, Ark., faces challenges on all fronts that have resulted in its shares falling 16% this year.

Its low-income shoppers in the U.S. are still struggling in an economy that is slowly recovering, though lower gas prices are providing some lift.

The company is also facing increasing competition from online king Amazon.com and dollar stores, which are pulling in shoppers seeking low prices and convenience.

"The changes we need to make require investment, and we're pleased with the steps we've taken,'' Walmart CEO Doug McMillon told investors.

Walmart’s U.S. division, which accounts for 60% of the company's total sales, is undergoing a major overhaul under new U.S. CEO Greg Foran.

The company is trying to improve pricing and selection as well as beef up customer service. It raised the minimum wages for its hourly U.S. workers to $9 per hour in April. By February 2016, all hourly workers will make at least $10 per hour.

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Those raises are part of a $1 billion investment in its workforce that also includes improved training.

Walmart is counting on happier employees to improve the experience for customers. The company is freeing more workers to be on the floor or running registers during its peak hours.

But the investments are battering the bottom line.

The company earned US$3.48 billion, or $1.08 per share, in the quarter that ended July 31. That compares with $4.09 billion, or $1.26 per share, a year ago.

Walmart posted revenue of $120.23 billion in the period, up 0.1% from a year earlier.