Walmart sales miss hides bigger shift in business

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.

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. 

The miss sent Walmart shares down more than 9% on August 20, even though the retailer raised its full-year sales and profit outlook.

The stock has recovered only slightly since the selloff. 

Walmart closed at $103.70 on August 21 and was trading around $106 intraday on Monday, August 24. 

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.

Its 52-week high, recorded in May, was $135.16, well above its current stock price of $106.49.

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.

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. 

BofA lowered its price target to $126 from $144, partly due to a weaker U.S. comparable-sales forecast.

But the new target still represents more than 20% upside from the stock price at the time of publication.

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.”

Walmart’s e-commerce business keeps accelerating

Global e-commerce sales increased 23% in the quarter, extending a multiyear run of digital growth. 

Walmart U.S. e-commerce grew 24%, Sam’s Club U.S. climbed 26%, and Walmart International increased 19%.

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The U.S. numbers are more striking beneath the headline.

• Store-fulfilled delivery sales increased more than 40%
• Average weekly e-commerce customers rose more than 20%
• Marketplace sales grew more than 50%

Walmart’s marketplace alone grew 52% during the quarter.

BofA sees those businesses as parts of a wider digital “flywheel.” 

Global advertising climbed 38%, membership revenue increased 17%, and Walmart+ members spend about four times as much as nonmembers, according to BofA.

Those operations also carry different economics than simply selling another carton of milk or a television inside a Supercenter.

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.

This is relevant because Walmart has spent years growing online sales while trying to bring down the cost of fulfilling those orders.

The equation is starting to change.

“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.

Walmart’s stores are becoming delivery hubs

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.

More than 23% of Walmart U.S. sales now come through e-commerce, double the share five years ago.

Yet Walmart says its stores become more important as that percentage rises, not less.

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.

That turns Walmart’s brick-and-mortar footprint into a network of fulfillment points close to customers.

The company expanded its delivery to less than 30 minutes in 38 U.S. markets during the quarter. 

Fast delivery grew 48%, with orders spanning fresh and frozen food, pharmacy products, fashion, and general merchandise.

Walmart CEO John Furner said speed is becoming more than a logistics achievement.

“Speed isn’t simply a fulfillment metric, it’s an acquisition strategy.”

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.

TheStreet previously reported on another piece of that strategy as Walmart began experimenting with dedicated delivery depots in smaller properties, including former drugstores.

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. 

Amazon and Walmart race toward same customer

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.

Amazon has been moving in the opposite direction, bringing inventory closer to shoppers as it expands its grocery delivery faster.

The two retailers are therefore attacking essentially the same problem from different starting points.

Amazon built the country’s dominant e-commerce operation and is trying to move closer to consumers.

Walmart already has roughly 4,600 U.S. stores and is turning more of that real estate into e-commerce infrastructure.

Its store network puts 95% of the country within a three-hour delivery range.

The battleground is increasingly not whether consumers shop online, but which retailer can deliver groceries, prescriptions, or everyday household items fast.

Wall Street divided over Walmart’s slowdown

Walmart’s weaker U.S. comparable sales have nevertheless raised questions about how much investors should pay for that future growth.

Deutsche Bank lowered its Walmart price target to $113 from $120 and maintained a Hold rating.

The firm called the earnings report a “tough day for the WMT bull narrative.” 

Further noting that the slowdown challenges the prevailing bull case, given Walmart’s premium valuation.

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.

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.

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.”

Roth Capital, which retained a Buy rating and $138 target, went further. 

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.

BofA reaches a similar conclusion.

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.

Walmart’s numbers increasingly support that argument.

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.

Walmart is therefore not simply selling more products online.

It is getting faster at delivering them, generating more revenue around those transactions, and improving its digital operation, which once weighed on profitability.

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