Walmart shoppers are increasingly treating the world’s largest retailer like an e-commerce company, and that is beginning to change the numbers that matter most to investors.<\/p>\n
In its recent second-quarter earnings, the retail giant Walmart’s U.S. comparable sales rose just 2.6%, its slowest pace in six years and below Wall Street expectations. <\/p>\n
The miss sent Walmart shares down more than 9% on August 20, even though the retailer raised its full-year sales and profit outlook.<\/p>\n
The stock has recovered only slightly since the selloff. <\/p>\n
Walmart closed at $103.70 on August 21 and was trading around $106 intraday on Monday, August 24. <\/p>\n
Shares are down over 7% this past week and over 11% in the past quarter. Walmart is also down 4.86% year to date, although the stock remains 9.47% higher over the past year.<\/p>\n
Its 52-week high, recorded in May, was $135.16, well above its current stock price of $106.49.<\/p>\n
But in a note shared with TheStreet, Bank of America argues that investors focusing on Walmart’s slowing comparable sales may be overlooking a bigger shift unfolding beneath the surface.<\/p>\n
The bank maintained its Buy rating following the sell-off, noting that Walmart’s digital indicators remain healthy enough to support longer-term market share gains and profit growth. <\/p>\n
BofA lowered its price target to $126 from $144, partly due to a weaker U.S. comparable-sales forecast.<\/p>\n
But the new target still represents more than 20% upside from the stock price at the time of publication.<\/p>\n
The reason for BofA’s optimism has less to do with what happens at Walmart’s checkout lanes than with what happens after a customer taps “order.”<\/p>\n
Global e-commerce sales increased 23% in the quarter, extending a multiyear run of digital growth. <\/p>\n
Walmart U.S. e-commerce grew 24%, Sam’s Club U.S. climbed 26%, and Walmart International increased 19%.<\/p>\n
More Walmart:<\/strong><\/p>\n The U.S. numbers are more striking beneath the headline.<\/p>\n Walmart’s marketplace alone grew 52% during the quarter.<\/p>\n BofA sees those businesses as parts of a wider digital “flywheel.” <\/p>\n Global advertising climbed 38%, membership revenue increased 17%, and Walmart+ members spend about four times as much as nonmembers, according to BofA.<\/p>\n Those operations also carry different economics than simply selling another carton of milk or a television inside a Supercenter.<\/p>\n Walmart said its U.S. e-commerce business produced double-digit incremental margins during the first half of the year, aided by advertising, membership, greater delivery density, automation, and customers paying for faster delivery.<\/p>\n This is relevant because Walmart has spent years growing online sales while trying to bring down the cost of fulfilling those orders.<\/p>\n The equation is starting to change.<\/p>\n “Digital is driving our growth, customer spend, and market share gains across all operating segments,” John Rainey, CFO, Walmart, told investors, adding that Walmart can expand those capabilities at a lower marginal cost.<\/p>\n Joe Raedle \/ Getty Images<\/p>\n<\/figcaption><\/figure>\n The biggest weapon in Walmart’s online push may be the same thing that has historically set it apart from other internet retailers: thousands of physical stores located within close proximity of most Americans.<\/p>\n More than 23% of Walmart U.S. sales now come through e-commerce, double the share five years ago.<\/p>\n Yet Walmart says its stores become more important as that percentage rises, not less.<\/p>\n Stores now serve as the last-mile fulfillment point for 80% of Walmart’s e-commerce orders and all of its fast deliveries, according to Rainey.<\/p>\n That turns Walmart’s brick-and-mortar footprint into a network of fulfillment points close to customers.<\/p>\n The company expanded its delivery to less than 30 minutes in 38 U.S. markets during the quarter. <\/p>\n Fast delivery grew 48%, with orders spanning fresh and frozen food, pharmacy products, fashion, and general merchandise.<\/p>\n Walmart CEO John Furner said speed is becoming more than a logistics achievement.<\/p>\n “Speed isn’t simply a fulfillment metric, it’s an acquisition strategy.”<\/p>\n Customers who use fast delivery shops at Walmart more frequently, engage more with the company, and are more likely to become Walmart+ members, according to Walmart.<\/p>\n TheStreet previously reported on another piece of that strategy as Walmart began experimenting with dedicated delivery depots in smaller properties, including former drugstores.<\/p>\n Those roughly 20,000-square-foot locations stock frequently ordered goods closer to customers and allow delivery drivers to collect orders without having to navigate a full Supercenter. <\/p>\n This increasingly puts Walmart head-to-head with Amazon in a part of retail where Walmart has historically held the stronger position: groceries and everyday essentials.<\/p>\n Amazon has been moving in the opposite direction, bringing inventory closer to shoppers as it expands its grocery delivery faster.<\/p>\n The two retailers are therefore attacking essentially the same problem from different starting points.<\/p>\n Amazon built the country’s dominant e-commerce operation and is trying to move closer to consumers.<\/p>\n Walmart already has roughly 4,600 U.S. stores and is turning more of that real estate into e-commerce infrastructure.<\/p>\n Its store network puts 95% of the country within a three-hour delivery range.<\/p>\n The battleground is increasingly not whether consumers shop online, but which retailer can deliver groceries, prescriptions, or everyday household items fast.<\/p>\n Walmart’s weaker U.S. comparable sales have nevertheless raised questions about how much investors should pay for that future growth.<\/p>\n Deutsche Bank lowered its Walmart price target to $113 from $120 and maintained a Hold rating.<\/p>\n The firm called the earnings report a “tough day for the WMT bull narrative.” <\/p>\n Further noting that the slowdown challenges the prevailing bull case, given Walmart’s premium valuation.<\/p>\n Telsey Advisory cut its target to $130 from $140 while retaining an Outperform rating, pointing to continued omnichannel growth but greater pressure from pharmacy pricing and higher fuel costs.<\/p>\n Morgan Stanley lowered its target to $125 from $140 but maintained an Overweight rating, arguing that e-commerce momentum and underlying operating-income growth remain intact.<\/p>\n JPMorgan also cut its target to $125 from $137 while keeping an Overweight rating and called the post-earnings decline a “good time to buy.”<\/p>\n Roth Capital, which retained a Buy rating and $138 target, went further. <\/p>\n It argued that as Walmart’s business expands beyond brick-and-mortar retail, comparable sales are becoming a less important measure of its operating performance.<\/p>\n BofA reaches a similar conclusion.<\/p>\n The firm called the slowdown in U.S. comps disappointing but pointed to marketplace, advertising, and membership growth as evidence that Walmart’s broader digital strategy remains intact.<\/p>\n Walmart’s numbers increasingly support that argument.<\/p>\n Fee-based fast deliveries represented a record 37% of store-fulfilled deliveries during the quarter, while more than half of e-commerce fulfillment volume now passes through automated facilities.<\/p>\n Walmart is therefore not simply selling more products online.<\/p>\n It is getting faster at delivering them, generating more revenue around those transactions, and improving its digital operation, which once weighed on profitability.<\/p>\n Related: 48-year-old casual dining chain closed 106 locations<\/strong><\/p>\n","protected":false},"excerpt":{"rendered":" Walmart shoppers are increasingly treating the world’s largest retailer like an e-commerce company, and that is 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Walmart’s stores are becoming delivery hubs<\/strong><\/h2>\n
Amazon and Walmart race toward same customer<\/strong><\/h2>\n
Wall Street divided over Walmart’s slowdown<\/strong><\/h2>\n