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Going into Walmart Inc.'s (NYSE: WMT) fourth-quarter and full-year 2017 financial report, investors were feeling pretty confident. The company had put up several quarters of solid sales growth and increasing comps, but it was the impressive e-commerce gains that had investors convinced that Walmart could effectively counter its online nemesis, Amazon.com. Walmart had seen more than 50% year-over-year e-commerce growth in each of the past three quarters, and investors were hoping for more of the same.
Those expectations took it on the chin when Walmart reported e-commerce gains in the fourth quarter of 23% year over year, the lowest increase seen in over a year. Walmart's stock to fell more than 10% in the wake of its financial release -- producing the single biggest dollar decline in the company's history. It's important for investors to remember, however, that this was the first full quarter without the benefit of the Jet.com acquisition. With that in mind, let's look at the rest of the numbers to see if they're as bad as Wall Street is making out.
Slowing e-commerce growth made investors run for the exits. Image source: Walmart.
It's really not that bad
For its just-completed fourth quarter, Walmart reported revenue of $136.3 billion, up 4.1% year over year. Comparable same-store sales grew 2.6%, while comp traffic grew 1.6%, both year over year. It also marked the 14th consecutive quarter of growth for Walmart.
Walmart's margin was pressured by a combination of lower prices and a higher percentage of online sales, as shipping tends to make those sales less profitable. Walmart has also been making additional products available to online shoppers; the total now exceeds 75 million products.
The combination of lower margin and several discrete items, including restructuring charges and a loss on extinguishment of debt, caused Walmart's diluted earnings to fall 40% to $0.73 per share, compared with $1.22 in the prior-year quarter. Excluding the discrete items of $0.60 per share would have resulted in essentially flat earnings.
Walmart experienced what it called "operational challenges" during the holiday season. The company increased seasonal inventory for items such as toys and electronics but ended up out of stock on staples and "more everyday items." This is obviously a sign of growing pains as Walmart ramps up its e-commerce business to compete with rival Amazon.
One of the initiatives the company has planned will be to take the smart-cart technology from Jet.com and integrate it into Walmart's e-commerce operation. Jet boasts much higher units per transaction than Walmart, so the company believes this change will drive higher growth. As customers add more items to the online shopping cart, they are rewarded with lower prices. Shoppers are also rewarded if they forgo returns or pay with a debit card.