"We're antsy about Christmas every year!" Will it be Happy Holidays for Walmart as digital revenues grow?

On the face of it, Walmart’s latest quarterly numbers look very healthy, with net income of $433 million vs a loss of $1.8 billion a year ago and revenue up from $152.8 billion to $160.8 billion. So why did the world’s biggest retailer get a pounding on Wall Street as the all-important Black Friday looms

Well, for the same reason that other retailers are looking gloomily at the calendar - no-one’s confident that this year’s Holidays are going to deliver any of them the gifts they want as the macro-economic climate continues to make consumers tighten their belts. That said, CEO Doug McMillon is defiantly upbeat: 

We're antsy about Christmas every year. This is my 33 year and I feel like it's a bit of a re-run in that it seems like we're always talking about customers being price-conscious, and we always will be. And they're always looking for the hot toy and the right gift for Christmas. And they'll come buy food for us for Thanksgiving and for the Christmas meal. And then New Year's will come, and we'll have clearance prices after Christmas, and we'll have a strong January because customers will react to clearance at least the first couple of weeks when that's happening. 

While Target’s digital revenues were in the doldrums earlier this week, Walmart is still seeing improvement. E-commerce sales were up 24% in Walmart US, 16% in Sam's Club US, and 15% globally. That’s having an impact on Walmart’s thinking around profit and loss (P&L), says McMillon:

Mentally I break it down as a combination of a traditional retail P&L and a newer version that starts with our digital businesses. It flows from first and third-party e-commerce pick-up and delivery to businesses like membership, advertising and fulfillment as a service. It includes some faster growing, higher margin components that combined with the more traditional P&L gives us a business model that's more profitable in percentage terms as it grows. We saw strong growth in all these areas for the quarter. And when you put it together with the supply-chain automation work we're doing, you get a more sustainable business that can grow more effectively over time and create a better mix along the way.

Marketplace

The retailer's Marketplace online offering is a growth engine for “mutually reinforcing businesses, he adds, meaning that Marketplace growth pulls other businesses, such as fulfillment along with it: 

Back in September we held our first ever Marketplace Seller Summit. We hosted thousands of current and potential sellers to let them see first-hand our commitment to this business and how we will grow it together. Since the beginning of last year, we've more than doubled the number of items available to customers on our US marketplace. It's an important piece of what we're building, and it's growing fast and not just in the US. 

In terms of fresh digital offerings, McMillon says:

We've started using generative AI to improve our search and chat experience. We've released an improved beta version of search to some of our customers who are using our app on iOS. In the coming weeks and months, we will enhance this experience and roll it out to more customers.

The firm is also expanding its next generation e-commerce fulfillment centers. Each of these measaures 1.5 million square feet and doubles storage capacity, enabling twice as many customer orders to be met daily as well as expanding same and next day delivery capabilities to aounrd 90% of the US. Three have been opened to date, while a further seven are due to come on line by the end of this month. 

My take

Let’s leave the last words to McMillon:

We're well-positioned and I think our value proposition across categories and the way we're serving people, which helps them save time as well as save money, causes us to feel good about our position for the quarter. We get a lot of questions about what's happening in the US economy and other economies and what's happening with the consumer, and we feel compelled sometimes to try and help explain what we're seeing. But to be clear from our point of view, we are front-footed, offensive, and feeling good about our opportunities. Stores and clubs look good. So that's the way we're thinking about the quarter.

Happy Holidays!