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E-Commerce Growth Helps Fuel A Strong Quarter For Walmart

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E-Commerce Growth Helps Fuel A Strong Quarter For Walmart
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Walmart inc. (NYSE: WMT) almost 10 percent gain in its stock price Thursday led equities markets higher, following an earnings release that touted ecommerce growth as a key driver.

U.S. same store sales for Walmart were up 4.5 percent, the best quarterly performance in 10 years. The company's traffic was up 2.2 percent, and the grocery division had the best year-on-year growth in nine years, according to research from Merrill Lynch. 

Walmart's stock rose Thursday by 9.33 percent, to $98.64. Its performance was viewed as being a key lift to the entire equities market, with the S&P 500 rising 0.79 percent. Stock in Target got a lift from the Walmart performance, climbing 1.7 percent to $82.07.

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With Walmart having staked much of its future in part on ecommerce—it purchased about 75 percent of Indian online retailer Flipkart during the quarter, the latest in a series of acquisitions and partnerships--the company's performance in that sector was notable. About 100 basis points of the comparable sales growth of 4.5 percent was contributed by ecommerce, the company said, and that estimate puts ecommerce sales up about 40 percent year-on-year, according to analysts. "E-commerce sales also improved sequentially and rose 40 percent, in line with the company's once controversial full year guidance," Wells Fargo said in its report on the earnings. 

Growth in its grocery sales was part of what Walmart said in its earnings was "significant progress with an expanded online assortment, including 1,100 popular new brands." Grocery pickup is available now at 1,800 locations, and Walmart is heading toward being able to do grocery delivery to about 40 percent of the U.S. population by the end of the year.

The grocery wars for Walmart featured partnerships announced in the company's previous fiscal quarter with Doordash and Postmates for delivery, as it takes on not just existing retialers but the growth of grocery delivery from Amazon through its Whole Foods division.

The earnings report led Merrill Lynch to declare that the discount retail sector, led by Walmart and Target Corporation (NYSE: TGT), is actually doing fine. Ecommerce is a reason. "We believe omni-channel initiatives are gaining momentum at discount stores, including Walmart, which now sells over 70 million items on-line and continues the rollout of online grocery pick-up locations and plans to offer same-day delivery expansion in 100 metro markets by year end," the Merrill report on Walmart's earnings said. "Target continues the aggressive rollout of "Shipt" (acquired Dec. 2017), which is expected to offer same-day delivery to about 2/3 of US by year end as both a fulfillment option on Target.com and for a growing list of retail partners (we expect more to be announced in addition to Publix, HEB, Meijer and others). We expect WMT and TGT will see both on-line and same-store sales benefits from their rapidly expanding omni-channel capabilities."

That belief of a strong market for discount retailers, according to Merrill Lynch, is also supported by several factors: the death or shrinking of retail competitors such as Toys R Us and J.C. Penney Company Inc. (NYSE: JCP) ; the aging of millennials into the their peak earning years; and a strong housing market that will lead millennial home owners to stock up their abodes.

Merrill Lynch called the upcoming period the "discount store decade."

Wells Fargo, in its report, pointed out that the e-commerce operations at Walmart is a money-loser. And after the terrific quarter, it offered this cautionary advice: "E-commerce risk is shifting to food/consumables, hard discount poses a threat, traditional competitors are beginning to fight harder, and the cost of doing business in retail continues to rise," the report said. "We also find it difficult to ignore the fact that WMT still operates 700 million sq. ft. of selling space (3x its closest peer) at a time when retail is under siege, and is the country's largest grocery store during the most challenging period in the industry's history."

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