U.S. Markets open in 2 hrs 58 mins

Walmart's online success is falling short in one huge area: Morning Brief

Myles Udland
Markets Reporter

Friday, November 15, 2019

Get the Morning Brief sent directly to your inbox every Monday to Friday by 6:30 a.m. ET. Subscribe

Walmart succeeds where Amazon lags

Walmart (WMT) on Thursday reported earnings and affirmed a few trends: the U.S. consumer is doing well and its online business is growing robustly.

Earnings per share in Walmart’s third quarter beat expectations, as did comparable store sales, while overall revenues fell short of estimates.

Revenue in Walmart’s eCommerce business grew 41%.

While Walmart’s online push under CEO Doug McMillon’s leadership has been the defining story of his tenure, McMillon outlined Thursday where the company still falls short when it comes to eCommerce. And that is in making its online business look less like its in-store business and more like Amazon (AMZN). Meaning less food and more stuff.

“We’re making progress on many fronts, but we need to do more and move faster, especially with our assortment including marketplace,” McMillon said Thursday of the company’s eCommerce business.

“Our strength is being driven by food, which is good, but we need even more progress on Walmart.com with general merchandise,” McMillon said. “We’re mixing the business out better to achieve better margin rates, but there is more work to do.”

At Walmart, grocery accounts for 56% of revenue. But grocery is a famously low margin business. And while improving processes and squeezing suppliers can squeeze extra basis points out of the grocery business, McMillon makes clear that Walmart’s real online play is converting the habitual grocery buyers into habitual purchasers of other products.

“We need to translate this repetitive food and consumable volume into a stronger Walmart.com business that’s profitable over time,” McMillon said. “So that’s what we’re working on.”

Walmart's got a big opportunity in ecommerce. (Reuters)

McMillon’s comments come as Walmart’s chief online rival Amazon looks to strengthen its grocery business. Just last month, Amazon cut its $14.99/month Amazon Fresh fee and opened free grocery delivery to all Prime customers. Earlier this year eMarketer estimated that Amazon topped all retailers in 2018 with online grocery sales of $8.2 billion. This figure, however, represented just 5% of Amazon’s North American retail sales for the year.

And Amazon did not buy Whole Foods to augment 5% of its business. Amazon bought Whole Foods because of the line often attributed to its founder Jeff Bezos — “your margin is my opportunity.”

Walmart’s grocery business, while lower margin than general merchandise, still represents to Amazon a competitive opportunity. Which has left Walmart seeing the balance of Amazon’s business as its own chance to take share from its bigger online rival.

By Myles Udland, reporter and co-anchor of The Final Round. Follow him @MylesUdland

What to watch today

Economy

  • 8:30 a.m. ET: Empire Manufacturing, November (6.0 expected, 4.0 in October)

  • 8:30 a.m. ET: Import Price Index month-on-month, October (-0.2% expected, 0.2% in September)

  • 8:30 a.m. ET: Retail sales, October (0.1% expected, -0.3% in September); Retail Sales excluding Autos, October (0.4% expected, -0.1% in September); Retail Sales excluding Auto and Gas, October (0.0% in September)

  • 9:15 a.m. ET: Industrial Production month-on-month, October (-0.4% expected, -0.4% in September)

  • 9:15 a.m. ET: Capacity Utilization, October (77% expected, 77.5% in September)

Earnings

Pre-market

  • 7:30 a.m. ET: J.C.Penney (JCP) is expected to report an adjusted loss of 56 cents per share on $2.41 billion in revenue

Read more

Top News

FILE - In this May 5, 2019, file photo Warren Buffett, Chairman and CEO of Berkshire Hathaway, speaks during a game of bridge following the annual Berkshire Hathaway shareholders meeting in Omaha, Neb. Berkshire Hathaway Inc. reports earnings on Saturday, Nov. 2. (AP Photo/Nati Harnik, File)

Warren Buffett trims Wells Fargo stake, adds RH [Yahoo Finance]

Trump wants Supreme Court to block subpoena for his taxes [AP]

Amazon to protest Microsoft's Pentagon cloud award: WSJ [Reuters]

Google antitrust probe to expand into Android: CNBC [Reuters]

YAHOO FINANCE HIGHLIGHTS

Lawmakers want to penalize companies for 'outrageous' CEO pay

Republican states best at managing their money; Democratic ones the worst

Ex-Goldman Sachs CEO Blankfein on Warren: 'Maybe tribalism is just in her DNA'

Follow Yahoo Finance on Twitter, Facebook, Instagram, Flipboard, SmartNews, LinkedIn, YouTube, and reddit.