Walmart’s first-quarter e-commerce sales spiked 74 percent as consumers sheltering in place sought their essentials from the big-box retailer’s online store, prompting the Bentonville, Ark., chain to pull the plug on the jet.com brand for good.
In a Nutshell: Walmart acquired the Jet business, positioned as an Amazon rival, in 2016 for $3.3 billion and speculation over the past year suggested the discounter would likely shut it down. The jet.com acquisition nearly four years ago “was critical to accelerating our omni strategy,” Walmart said Tuesday.
Walmart has had a tough time integrating Jet and other digitally native brands, driving e-commerce losses to nearly $1 billion last year. Problems at Jet.com started with a 2018 relaunch targeting affluent urban millennials. That gave rise to JetBlack, a text-message-based concierge service for upper-income customers that included same-day delivery services. It launched in 2018 in Manhattan, but nearly a year later was no longer in operation. It elected to keep Bonobos after considering a sale but did end up offloading women’s vintage-inspired apparel retailer Modcloth to Go Global Retail last year. There was no immediate word on the future of Marc Lore, the jet.com founder and digital guru who currently is president and chief executive of Walmart’s domestic e-commerce business.
In the quarter, the mass discounter launched an express delivery service in the U.S. that gets orders to customer doorsteps in under two hours, expanded capacity in the U.S. for existing pickup and delivery services, expanded its SNAP online pilot to more states in the U.S. in coordination with the USDA and forged a partnership between Indian e-commerce firm Flipkart and Uber to deliver everyday essentials to customers. On the business front, it’s simplified the process to qualify for the company’s supply chain finance program and has waived or discounted rent payments for vendors operating shop-in-shops within Walmart stores.
“Walmart’s Q1 results illuminate the impact of the coronavirus on the U.S. consumer, providing insight into the shift in product mix away from discretionary items toward food and consumables, as well as the surge in online, with up 74 percent on a base of over $20 billion reflective of increasing comfort of consumers, borne out of necessity, with this channel,” Charlie O’Shea, credit analyst at Moody’s Investors Service, said. “The reductions in margins, especially when considering at least $900 million in coronavirus-oriented spend, and the explosion in higher-cost online sales, is actually fairly benign, indicating that Walmart’s online business was able to largely handle this growth surge within its existing capability.”
O’Shea expects Walmart will leverage the learnings and look to retain new customers as it continues to “broaden all customer relationships.”
The $900 million in virus-related expenses was largely spent on extra cleaning and safety costs, plus higher hourly and bonus pay for its store associates and warehouse workers.
Net Sales: Total revenues for the quarter ended May 1 rose 8.6 percent to $134.6 billion, while U.S. same-store sales rose 10 percent from strength in food, consumables, health and wellness and some general merchandise categories. Walmart U.S. e-commerce sales jumped 74 percent, due to strong results for grocery pickup and delivery services, walmart.com and marketplace. Comp sales at Sam’s Club rose 12.0 percent, while its e-commerce operation saw sales grow by 40 percent.
Net sales at Walmart International rose 3.4 percent to $29.8 billion.
The company said its consolidated gross profit rate fell 66 basis points, mostly due to the carryover of investments in price from last year and a shift in the sales mix to lower-margin categories, as well as some markdowns in general merchandise.
Earnings: The company said first-quarter GAAP earnings per share were $1.40, with adjusted diluted earnings per share at $1.18. The adjustment was attributed to the exclusion of the effects of an unrealized gain of 22 cents, net of tax, on the discounter’s equity investment in JD.com.
Wall Street analysts were expecting adjusted diluted EPS of $1.17 on revenues of $130.3 billion.
The company pulled its earlier guidance for 2020 due to uncertainties against a backdrop of the coronavirus pandemic. “The decision to withdraw guidance reflects significant uncertainty around several key external variables and their potential impact on our business and the global economy, including: the duration and intensity of the COVID-19 health crisis globally, the length and impact of stay-at-home orders, the scale and duration of economic stimulus, employment trends and consumer confidence,” chief financial officer Brett Biggs said.
Biggs pointed to Walmart’s strong business fundamentals, noting that its “financial position is excellent.”
“Customers trust us to deliver on our brand promise, and I’m confident in our ability to perform well in most any environment,” he added. “While the short-term environment will be challenging, we’re positioned well for long-term success in an increasingly omni world.”
CEO’s Take: “More than ever, the news this quarter is our amazing associates. They are rising to the challenge to serve our customers and our communities. I’m proud of how they’re adapting and performing. Our omnichannel strategy, enabling customers to shop in seamless, flexible ways, is built for serving the needs of customers during this crisis and in the future,” president and CEO Doug McMillon said.