RDrop in grocery prices hurts Wal-Mal profit margins

Wal-Mart Stores Inc.'s brick-and-mortar sales fell short of expectations last quarter, even as its acquisition of internet start-up Jet.com gave a much-needed jolt to e-commerce orders.

Sales at U.S. stores open at least a year rose 1.2 percent in the third quarter, the company said in a statement Thursday. That was just shy of the 1.3 percent predicted by analysts and marked a slowdown from the previous quarter.

Total revenue also missed estimates, hurt in part by currency headwinds.

The sluggish sales raised concerns for investors, despite Wal-Mart coming through on its pledge to energize its e-commerce business. Wal-Mart's $3 billion purchase of Jet.com in September helped fuel a 21 percent gain in online sales last quarter, an acceleration from the 12 percent gain in the second quarter.

But at its physical stores, a historic streak of food deflation put pressure on the chain.

Grocery prices across the country have dropped on a year-over-year basis for 10 straight months, a streak of deflation not seen since 1960. That's been good for consumers, but it's brought headaches to Wal-Mart, the largest seller of groceries in the United States.

Eggs and beef have grown especially cheap, making competition fiercer between supermarkets. The run of deflation has squeezed profit margins and sent shares of some low-cost chains tumbling.

'We are not satisfied,” CEO Doug McMillon said in the statement. 'We will continue to change and pick up speed to reach our longer-term aspirations.”

Chief Financial Officer Brett Biggs said it is too early to tell how the incoming Donald Trump administration will affect its business. The president-elect's pledge to renegotiate trade deals with Mexico and China could have a major impact on Wal-Mart, which imports many of its products from China and has a large business in Mexico.

Since taking the helm in 2014, McMillon has boosted pay for U.S. workers, tried to improve Wal-Mart's grocery quality and spent billions on its online operations - aiming to gain ground on Amazon.com Inc. He also is pushing to lower Wal-Mart's prices, clean up stores and take better care of customers.