Walmart's online business is booming

Nicole Sinclair
Markets Correspondent

Walmart (WMT) shares rose Thursday after the retailer reported better-than-expected first quarter comparable-store sales and earnings.

Importantly, Walmart is making headway in online sales, where continues to wreak havoc on brick-and-mortar retailers. The company’s e-commerce sales jumped 63%, fueled by a 69% surge in gross merchandise volume. This was the segment’s fastest growth in five years.

These results signal Walmart is getting a return on its online expansion efforts, which included the $3.3 billion acquisition of last year.

It’s worth noting that Walmart’s online growth isn’t just growth through acquisitions.

“The majority of our growth is and will be organic,” CEO Doug McMillon said of Walmart’s e-commerce business.

Walmart overall continues to grow

US same-store sales, which includes the company’s brick-and-mortar stores, rose 1.4%. That was slightly ahead of expectations for 1.3% growth. It was also the business segment’s 11th consecutive quarter of positive domestic sales growth.

According to management, about 80 basis points of that growth was from e-commerce.

“We can see that we’re moving faster to combine our digital and physical assets to make shopping easier and more enjoyable for customers,” said McMillon.

Earnings per share came in at $1.00, which was ahead of analysts’ expectations for $0.96. Net revenue of $117.5 billion, which was a hair below the $117.8 billion expected.

Turnaround efforts

The company’s focus on online growth has come from a combination of organic efforts and acquisitions.

At its investor meeting in October 2015, Walmart announced it would make heavy investments in e-commerce (along with employee wage increases) that would impact profits for the next few years. Shares fell 10% following the announcement. And while investors were disappointed when last year’s first quarter report showed only 7% e-commerce growth despite increased investments, online sales have surged in more recent quarters.

Source: Walmart press releases

Following the August 2016 acquisition, Walmart placed Jet co-founder Marc Lore as head of e-commerce. Smaller deals have followed including Moosejaw, an outdoor retailer, and ModCloth, a women’s apparel seller. There have also been reports that the company has held talks to buy online retailer Bonobos. The company has also focused efforts on groceries online.

“ now has 50 million first and third party items to choose from compared to 10 million at this time last year—so our assortment continues to ramp,” McMillon noted.

Meanwhile, the company has made efforts to improve its brick-and-mortar experience, including faster checkouts, including for groceries, which make up over 50% of US sales at the company.

“We’re transforming to become more of a digital enterprise,” he said. “The change is starting to be visible to our customers as they use online grocery, Walmart Pay, Scan & Go at Sam’s Club and our Walmart app to skip the line when using our pharmacies and financial services in our U.S. stores. Online grocery also continues to perform well and we’re on track to scale the offering to more stores this year in several countries, including the U.S.”

Nicole Sinclair is markets correspondent at Yahoo Finance.

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