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Walmart (NYSE: WMT) shares were getting shellacked after its latest earnings report. Despite posting strong comparable sales growth and beating revenue estimates, the stock had its worst day since October 2015.
Shares dropped nearly 10% as investors worried about slowing e-commerce growth and an earnings miss. After the stock jumped 43% last year, shares may have been at risk for a pullback as well.
Still, this was an overall solid report, and the company is continuing to execute its strategy effectively. Here are a few reasons why Walmart is still on track after its latest report.
Image source: Walmart
1. Comparable sales are soaring
Walmart just reported 2.6% comparable sales growth in its U.S. stores, and a 4.4% two-year comp stack, its fastest two-year comparable sales growth in eight years. Efforts to improve stores by paying employees better, eliminating out-of-stocks, and speeding up checkout lines are clearly paying off and resonating with customers. Traffic was up 1.6% in the most recent quarter, indicating that customers are steadily returning to stores. E-commerce continues to drive comparable sales growth, adding 60 basis points in the fourth quarter, but store improvements have been the primary growth driver.
At Sam's Club, comparable sales growth was also solid, increasing 2.4% on a 4.3% uptick in traffic, and management's guidance for the coming year was particularly encouraging. For the year ahead, the company sees comp sales growth of 2% at Walmart U.S. and 3-4% at Sam's Club, which excludes the effect of removing tobacco from stores.
Considering the number of retailers that are seeing comparable sales fall as consumer buying habits shift, Walmart's ability to deliver consistent same-store sales growth is a sign of its strength.
2. E-commerce is still strong
Walmart stock seemed to take a hit as U.S. e-commerce growth slowed from 50% in the third quarter to just 23% in the fourth quarter, but management offered an explanation for the slowdown as well as a plan to deliver 40% e-commerce growth for fiscal 2019.
The company said that most of the decline in e-commerce growth was due to lapping its acquisition of Jet.com, but it acknowledged that some operational challenges curtailed growth.
On the earnings call, CEO Doug McMillon noted that the majority of the company's e-commerce sales growth has come from Walmart.com and online grocery, and the company seems optimistic about delivering another year of 40% e-commerce growth as it expands its number of online grocery locations from 1,000 to 2,000 this year and launches other initiatives and investments in e-commerce.