When Walmart reported earnings Thursday (Nov. 14), it managed to extend one of retail’s more impressive growth streak — 21 consecutive quarters. It was one element of an earnings report that, by and large, indicated continued strength from the nation’s largest retailer by sales.
Net income, as noted, was once again a beat — coming in at $3.26 billion or an earning per share (EPS) of $1.15 — comfortable beat on analysts' expectations of $1.09. Sales were slightly below expectations, coming in at $127.99 billion vs. $128.65 billion expected, though most analysts agreed the miss was balanced out by Walmart’s higher than expected eCommerce growth of 41 percent during the third quarter of the year. All in all, revenue was up 2.5 percent on Q3 2018. Same-store sales were up 3.2 percent, slightly ahead of analyst estimates of 3.1 percent.
The retailer also noted that its average basket size continues to grow — up 1.9 percent from the previous quarter, an improvement on the 1.8 percent growth reported in 2018.
“We continue to see good traffic in our stores,” CEO Doug McMillon said of the results. “We’re growing market share in key food and consumables categories, including fresh.”
And yet, McMillon’s remarks to analysts following the release were not a victory lap, or at least in entirely a victory lap, as Walmart’s CEO observed that while its eCommerce growth was strong in Q3 — it was also driven mainly by Walmart’s digital grocery operation. That, he said, needs to change.
“Our strength is being driven by food, which is good, but we need even more progress on Walmart.com with general merchandise. We’re mixing the business out better to achieve better margin rates, but there is more work to do. We’re committed to progress and building a larger, healthier eCommerce business. Our customers want that, our marketplace sellers want that, and so do we.”
Walmart’s eCommerce efforts have been the subject of some speculation this fall — and its various struggles have been quite public. Reports earlier this fall indicated that Walmart is on track wrack up about $1 billion in losses this year connected to their efforts to build out a more robust eCommerce platform. After going on a start-up buying spree in the last few years that included Jet.com ($3.3 billion), Bonobos, Eloqui, Moosejaw and ModCloth — Walmart has found all of their acquisition to unprofitable thus far, and even recently sold off ModCloth, reportedly at a loss.
Walmart’s eCommerce division also reportedly won’t acquire any new companies in the foreseeable future, “barring an incredible acquisition opportunity that is just too good to pass up,” according to sources.
The issues in making their ongoing eCommerce efforts profitable also led to some public division in Walmart’s executive team, specifically eCommerce chief Mark Lore and former Walmart U.S. CEO Greg Foran. There were even rumors as of early July that Lore might be soon departing the company.
But as it turns out, Foran ended up announcing he was the one leaving Walmart in early October, heading off to take the position of CEO of Air New Zealand Limited. He was officially succeeded as of Nov. 1 by John Furner, formerly the CEO and president of Sam’s Club.
Despite the reports of strife and profitability worries, Walmart has been avidly beefing up its digital services roster this fall. Add-ons include one-day delivery, Delivery Unlimited to allow customers to order grocery delivery from roughly 1,400 locations for $98 a year. It has also begun testing in-home delivery service for $19.95 per month.
“Grocery pickup and delivery, along with new offerings like Unlimited Delivery and InHome Delivery, will help us unlock advantages we have to serve customers in a way that reduces friction and enhances convenience,” McMillon said, before noting that there is still more than needs to be done to round out Walmart’s eCommerce offering. “We need to translate this repetitive food and consumable volume into a stronger Walmart.com business that’s profitable over time, so that’s what we’re working on,” he noted.
To that end, Walmart has been adding to its voice offerings all year. Last spring, it announced the ability to order via Voice at Walmart was coming to the Google Assistant, and earlier this week, the retailer announced a similar functionality is coming to Apple's Siri. Going forward, Apple users can build out their basket by just saying ‘Add to Walmart’ and then naming the product they want to add to their cart. They can then instruct Walmart to place their order, and elect to have it picked up or delivered to their door (if they live within range of a Walmart that delivers). Walmart said the service is customer-centric and will learn the more that it’s used, such that if a customer asks it to order “orange juice,” it will default to the brand the customer usually buys unless instructed to do otherwise.
In further efforts to push its digital commerce game forward, Walmart is also expanding its efforts in the FinTech arena — collaborating with GreenDot to create and launch a FinTech accelerator to be called TailFin. Last month Walmart's Senior Vice President of Services and Digital Acceleration Daniel Eckert spoke with Karen Webster shortly after the news broke and noted that Walmart is adamant about staying ahead of digital retail evolution — making the accelerator the next logical progression given that “the next big thing in retail is the integration of FinTech and retail tech.”
As for the more immediate future — McMillon noted that Walmart is “prepared for a good holiday season,” and adjusted its earnings and revenue estimates for the remainder of the year slightly upward.
Investors liked what they saw out of the report, concern about the eCommerce business notwithstanding, and Walmart’s stock price increased by 1 percent, having climbed about 30 percent since the start of 2019. Walmart’s results also, curiously, seemed to bounce the share price of its rival Target — which went up 1.7 percent in the hours after Walmart’s results were released. We’ll find if investors were prescient — or a little over-enthusiastic — next week when Target rolls out its Q3 results.