Instead of being disrupted by the growth of online retail, Walmart (NYSE:WMT) is riding the e-commerce wave to higher sales and fatter profits. The megaretailer reported exceptionally strong fourth-quarter results on Tuesday morning, laying to rest any fears stirred up by a surprisingly weak read on holiday retail sales from the U.S. Census Bureau.
Walmart's stores are drawing in traffic, and those same stores form the foundation of the company's grocery pickup and delivery initiatives. Grocery, along with an expanded online product selection, drove U.S e-commerce sales growth of 43% in the fourth quarter.
Walmart expects grocery pickup to be available at 3,100 U.S. stores by the end of fiscal 2020, with groceries set to be delivered out of 1,600 U.S. stores. That's up from 2,100 pickup and 800 delivery locations at the end of fiscal 2019.
Full-year U.S. e-commerce sales rose 40%, and the company expects 35% growth in fiscal 2020. Walmart's annual e-commerce sales now sit around $16 billion, so a 35% increase this year represents about $5.6 billion of additional revenue.
Walmart is still well behind Amazon.com in terms of total online sales, but it's growing much faster than Amazon's first-party business. Amazon generated about $123 billion in online sales in 2018, excluding revenue related to third-party sales. Amazon grew those first-party sales by just 13% year over year in the fourth quarter.
Closing the gap with Amazon will take years, but Walmart is well on its way.
Stores and profits
E-commerce isn't the only thing going right for Walmart. Fourth-quarter U.S. store traffic rose 0.9%, combining with a 3.3% increase in transaction size to drive comparable-store sales growth of 4.2%, excluding fuel. That's far better than the 2.6% comparable-sales growth Walmart managed in the prior-year period.
Total revenue rose 2.5% to $138.8 billion, hurt by currency in international markets. Operating income jumped more than 35% year over year, while adjusted earnings per share rose 6% to $1.41. For the full year, adjusted EPS of $4.91 was up about 11%. That growth is despite Walmart's investments in e-commerce and expensive initiatives like free two-day shipping.
Walmart sees adjusted EPS rising by a low- to mid-single-digit percentage this year if the impact of Flipkart is excluded. U.S. comparable-sales growth is expected to be between 2.5% and 3%, while the international business is expected to grow by about 5% excluding currency effects.
Along with its fourth-quarter results, Walmart announced that it was raising its quarterly dividend to $0.53, up from a previous payment of $0.52.
A disruptive retailer
Walmart is already the largest grocery retailer in the U.S., but that's not stopping it from aggressively pursuing online grocery. The company is not only disrupting the grocery industry, but it's disrupting itself as well. That's a sign that Walmart recognizes which way the wind is blowing. The company can't afford to dawdle as Amazon ramps up its own grocery efforts.
Amazon is still the king of online retail, but Walmart represents a legitimate threat to the market leader. Walmart, along with Target, another traditional retailer that's embraced e-commerce, are becoming viable alternatives to Amazon. Amazon still has a much broader product selection, but that gap has started to close.
Some retailers, like department stores, struggled this holiday season. Walmart was not one of them. The company's focus on low prices and an ever-expanding assortment of convenient online initiatives drove customers to its stores and to its websites. Expect more of the same this year.