As Walmart tries to catch Amazon, profits prove elusive
Under pressure from Wall Street to better compete with Amazon (AMZN), Walmart (WMT) CEO C. Doug McMillon has made strengthening the company’s e-commerce business a priority, a strategy that appears to be gaining traction.
Walmart’s U.S. online sales rose 29 percent over a year ago, the third straight quarter of double-digit increases. The discount giant was helped by its $3 billion acquisition of online retailer Jet.com in 2016. Walmart customers also responded positively to promotions such as the company offering free two-day shipping on Walmart.com purchases of $35 or higher.
“We continued to invest in e-commerce to accelerate growth,” McMillon said in touting Walmart’s online progress during a conference call Tuesday to discuss its latest earnings. “We’re gaining traction and moving faster. We’re the second-largest U.S. online retailer by revenue, one of the top three online retailers by traffic and our Walmart app is among the top three apps in retail.”
Walmart, the world’s largest brick-and-mortar retailer, has been trying for years to soup up its ecommerce business to better capitalize on consumers’ embrace of online shopping and, more recently, mobile technology. It has been a slog.
According to trade publication Internet Retailer, Walmart posted $13.4 billion in e-commerce sales in 2016, compared with Amazon’s $94.7 billion. Analysts don’t expect Walmart, which expects to lose money on e-commerce for the next few years, to catch up to Amazon anytime soon.
“They have invested a lot in e-commerce and they’re still losing money at it,” said Brian Yarbrough, an analyst with investment firm Edward Jones. “So they don’t have anything to show for it. Are sales growing? Sure. Do you hope at some point they get some scale and be profitable? Of course.”
Walmart has acquired roughly a dozen e-commerce startups in recent years, recently agreeing to purchase ShoeBuy to compete with Amazon’s Zappos and also snagging outdoor apparel seller Moosejaw. The numbers of individual products available on Walmart.com has surged from 8 million at the start of last year to 30 million today.
To jumpstart Walmart’s e-commerce push, McMillon put Jet.com head Marc Lore in charge of Walmart’s U.S. e-commerce business and introduced features that allow consumers to pick up groceries they order online at one of the company’s stores.
Walmart’s web-based business, which is based in California’s Silicon Valley and employs more than 3,000 people, remains integral to its growth strategy. In underlining that point, McMillion noted that 70 percent of the visitor traffic on Walmart.com during the critical Black Friday and Cyber Monday shopping days came from mobile users.
“Looking ahead, you’ll continue to see us make investments in e-commerce to drive traffic and improve the customer value proposition,” CFO Brett Briggs said in the earnings call. “We’re excited about the things we’re doing, the speed at which we’re doing them and the work we still have to do.”
Moving faster on e-commerce is essential, but Walmart still needs to find a way to boost growth in its stores, which have better profit margins. Jet.com is a case in point. The startup expected to lose money through 2020 before it was acquired. Although Walmart’s overall financial performance wasn’t as bad as Wall Street analysts had feared, it still wasn’t anything to brag about.
Net income fell 18 percent to $3.76 billion, or $1.22 per share, while revenue rose 1 percent to $130.9 billion. Excluding one-time items, the per-share price was $1.30, topping the $1.29 Wall Street analysts expected. U.S. same-store sales, a key retail metric measuring activity at existing locations, rose a better-than-expected 1.8 percent.
“Even in this quarter, sales were decent, but profits were down again,” Yarbrough said. “I don’t see that stopping anytime soon.”
