Walmart (WMT 0.60%) grew online sales 74% in the first quarter. In the press release announcing its earnings results, management attributed the acceleration in online sales growth to "strong results for grocery pickup and delivery services."

A couple of other notable items from Walmart's report include gross margin contraction of 66 basis points and lower losses for its eCommerce operations. Both of those indicate strong uptake in online grocery, which will pressure gross margin but leverage the operations already in place at over 3,300 Walmart stores nationwide.

That shouldn't be a huge surprise. There were a ton of data points over the last couple of months that online grocery sales are surging amid the coronavirus pandemic, and Walmart is winning the lion's share of new sales.

But there are a few questions investors should be asking about Walmart's stellar eCommerce performance last quarter. How much of that sales growth comes from the grocery segment? Can Walmart translate strong online grocery sales growth into stronger general merchandise sales? And how sustainable is it?

A man loading groceries into the back of a car,

Image source: Walmart

The impact of online grocery

Grocery orders accounted for nearly 54% of Walmart's online sales last quarter, according to data from M Science. That's up from about 46% in the first quarter last year.

Some back of the envelope math suggests grocery accounted for about two-thirds of Walmart's online sales growth in the first quarter. Moreover, online grocery sales roughly doubled versus the first quarter last year. CFO Brett Biggs said it saw a 300% increase year-over-year at the peak last quarter.

Walmart U.S. CEO John Furner said general merchandise sales accelerated in the second part of the quarter as well. Indeed, the data from M Science suggests about 49% growth in online general merchandise sales. That's faster than the 35% overall growth the company posted for the fourth quarter. It's also faster than Amazon's North American sales growth in the first quarter, which totaled 29% -- although Amazon's first quarter ended two weeks earlier than Walmart's, so it isn't perfectly comparable.

So, it's hard to tell whether Walmart's online grocery shoppers are having an outsized impact on its general merchandise sales, or if it's merely benefiting from the overall shift to e-commerce amid the pandemic.

Transitioning online grocery shoppers into shoppers

The head of Walmart U.S. eCommerce, Marc Lore, understands the importance of transitioning its online grocery shoppers into general merchandise shoppers. That was the likely impetus behind the company's recent decision to ax its stand-alone Walmart Grocery app and push customers to use the main app. Management also talked about how it's making more and more general merchandise items available for curbside pickup during its first-quarter earnings call.

Meanwhile, initiatives like Delivery Unlimited, the subscription delivery service Walmart rolled out last fall, aren't even designed to generate a profit upfront. "All the money is made on the long-tail," Lore said at a conference last year. That is to say, Walmart's online grocery shoppers need to buy more general merchandise -- stuff they might currently buy elsewhere -- in order to make online grocery -- particularly delivery -- a profitable endeavor long-term.

While losses might have improved for Walmart's eCommerce operations, that doesn't mean it's well on its way to profitability. Unless online grocery starts pulling general merchandise sales away from other online retailers, it's going to be hard for Walmart to make it profitable.

How sustainable is Walmart's online sales growth?

There's no doubt Walmart's online sales got a significant boost from the coronavirus pandemic. But if the vast majority of the growth came from the grocery segment, its growth could be more sustainable than other retailers, who are merely seeing a temporary spike due to more physical stores being closed.

There's been a secular trend of grocery sales moving online for the last few years, and COVID-19 may have accelerated that trend. It seems unlikely most shoppers trying out online grocery ordering now will go back to old habits considering online grocery already had momentum going into social-distancing efforts. As such, Walmart should see a sustained increase in online grocery ordering. Amazon has also been a beneficiary of the sudden shift to online grocery.

But Walmart still needs to translate that sustained online grocery ordering into more general merchandise sales in order to make it profitable. And while it saw a nice acceleration in general merchandise sales last quarter, it remains to be seen how much of that acceleration came from its success in online grocery versus the secular shift to e-commerce amid coronavirus.