What to focus on
Walmart (WMT) is expected to announce its fiscal 1Q19 results on Thursday, May 17. Besides focusing on comps (comparable store sales) and earnings performance, the company’s digital sales growth rate is also important. Walmart has been reporting improved comps and earnings growth over the past several quarters. However, one thing that has held back its stock is the deceleration in of e-commerce sales growth rate.
Walmart stock soared close to 43% in 2017, thanks to the stellar growth in its e-commerce business that positively supported the comps growth rate in its US business. However, Walmart stock is down about 21% since it reported its fiscal 4Q18 results on February 20. The primary reason for the downtrend is the deceleration of its digital sales growth rate. Walmart’s e-commerce business registered growth of 63%, 60%, and 50% in fiscal 1Q18, fiscal 2Q18, and fiscal 3Q18, respectively. However, during the fourth quarter, Walmart’s digital sales growth came in at 23%, a sharp decline sequentially.
Plus, pressure on operating margins and EPS owing to the company’s increased investment in growth initiatives is still dragging on the stock.
Why digital sales matter most
As shoppers shift to online shopping and Amazon (AMZN) rapidly expands in the grocery space, the digital efforts of big retailers have helped them remain afloat amid turbulent times. From Walmart to Target (TGT), the key to their improving comps has been fast-growing digital sales. Plus, not everyone can be Costco (COST), which somehow remains immune to the Amazon effect and is growing its business at a stellar rate, thanks to its unique members-only business model and value proposition.
Walmart blamed inventory issues for the slowdown in digital sales during the key holiday period. However, the company remains upbeat and expects growth to accelerate in fiscal 2019. Walmart has undertaken several strategic measures on the digital front in the past couple of months that are expected to boost digital sales.
Some key measures include expanding its online grocery delivery and pickup service, revamping its website, launching exclusive brands, and increasing the number of pickup towers.
These measures are expected to support the company’s e-commerce sales growth rate in the coming quarters. Walmart expects its digital business to register growth of about 40% in fiscal 2019.
In this series, we’ll revisit Walmart’s recent digital initiatives and discuss what analysts expect for fiscal 1Q19.