Shares of Wal-Mart Stores (wmt) fell 4% in premarket trading after the retailer reported U.S. comparable sales rose 1.2% in its third fiscal quarter, missing Wall Street forecasts, hurt in part by lower food prices. Analysts had been expecting growth of 1.3%, according to Consensus Metrix. And growth in the number of shoppers who came into its U.S. stores also slowed, only increasing 0.7% and illustrating the challenge of mobilizing shoppers when they can simply go online.
Still, digital sales were the brightest spot in Walmart’s results. E-commerce growth accelerated again, rising 20.6% globally, with the U.S. outperforming other major markets. Prior to the second quarter, Walmart’s e-commerce growth had been shrinking for two years.
Earlier this year, Walmart acquired jet.com for $3 billion and has added millions of items to its online assortment as it looks to narrow the enormous gap with Amazon.com (amzn), whose U.S. sales are six times greater than Walmart.com’s.
But with 55% of Walmart sales coming from grocery, it was hard to escape the pain of food deflation that has bedeviled U.S. grocers for many quarters. (Walmart is by far the No. 1 grocer in the country). The company said pressure on prices lowered comparable sales in grocery by 1.5 percentage points.
Since Doug McMillon became CEO of Wal-Mart Stores in 2014, the company has been investing heavily in tech to offer services like in-store pickup of online orders, while giving workers pay raises to motivate them to improve customer scores and keep stores cleaner. What’s more, Walmart is trying to keep inventory leaner to protect its profit margin from unsold merchandise. Inventory at U.S. stores was down 6%.
“Our customer satisfaction scores continue to improve, and the team did a great job of managing the flow of inventory again this quarter,” McMillon said on a recorded call.
Walmart anticipates U.S. comparable sales will rise 1% to 1.5% in the crucial holiday quarter, which would mean again outperforming Target (tgt), which is forecast anywhere from a 1% drop to a 1% gain.
Net income attributable to the world’s largest retailer fell to $3.03 billion, or 98 cents per share, in the third quarter ended Oct. 31 from $3.3 billion, or $1.03 per share, a year earlier.
Prior to the earnings release on Thursday, Wal-Mart Stores’ stock had increased 23% in the last year.