Asda reported its first underlying sales growth for three years in second quarter results released today, helping owner Walmart beat analyst expectations.
Like-for-likes at Asda were up 1.8 per cent excluding petrol, compared to a 2.8 per cent decline in the first quarter.
Asda's revenue grew more than expected at 3.9 per cent.
For the Walmart group as a whole, total revenue was $123.4 bn (95.88bn), an increase of 2.1 per cent.
Comparable sales in the US business grew 1.8 per cent with traffic growth of 1.3 per cent.
But despite Asda's stronger performance, sales in the whole international business dropped one per cent to $28.3 billion.
Why it's interesting
Asda has been losing out to discounters Aldi and Lidl as UK supermarkets wrestle for market share. Today's results mark the first time in 12 consecutive quarters that the retailer has reported underlying sales growth.
But customers finally responded to price cuts. Across the whole Walmart group, margins fell as it focused on competitive pricing.
What the company said
Walmart president and CEO Doug McMillon said: "Customers are responding to investments in price and store experience by visiting the stores more often and increasing their basket sizes."
Asda president and CEO, Sean Clarke, said: “Our continued focus on delivering great value and service meant 275,000 new customers chose to shop at Asda in the second quarter, particularly during Easter, which saw us return to positive comp growth."
What analysts said
Ray Gaul, vice president of Kantar Retail was impressed by the differentiation in Asda's product offering, but said the real test would be digital sales.
He said: "This summer’s Holiday Shop and the upcoming Back to School season give us a glimpse on how Asda plans to boost Christmas sales: affordable yet trendy clothes; toys and homewares paired together with premium seasonal food options such as Asda’s five premium gins.
"The success of this Christmas season for Asda will rely heavily on the retailer’s online presence. This will mean introducing new services to Asda’s British shoppers and taking Asda’s show-on-the-road overseas"
Phil Dorrell, a partner at Retail Remedy, was less convinced of Asda's long-term prospects.
"Sean Clarke's focus has been on price, food quality and customer service, but this still feels like rearranging product on the shelf when the shop itself is in the wrong place," he said.
"It is hard to say what Asda stands for when it is keeping up with its competitors rather than carving its own path. Asda has all the components to put together a desirable model, what it lacks is the creativity to assemble them into something the customer wants."