A year ago, it seemed like Wal-Mart Stores, Inc. (NYSE:WMT) might end up just another victim of Amazon.com, Inc. (NASDAQ:AMZN)’s e-commerce dominance.
However, as WMT’s second-quarter earnings report revealed, Walmart may not have to beat AMZN to thrive.
Second Place Good Enough For WMT
While there’s no denying the secular retail shift to e-commerce, AMZN isn’t necessarily the grim reaper for all traditional retailers. Walmart seems to be a perfect example.
Other retailers like Target Corporation (NYSE:TGT), Macy’s Inc (NYSE:M) and Gap Inc (NYSE:GPS) are clearly struggling to figure out how to compete with AMZN. However, WMT just delivered positive overall sales growth, 3% U.S. sales growth, 1.6% same-store sales growth and 12% EPS growth. That is certainly not the kind of quarter you’d expect from a dying company.
WMT stock is also trading near its 52-week high.
Let’s be clear — Walmart is not beating Amazon. But that’s OK.
“No one catches Amazon online,” Moody’s analyst Charlie O’Shea says. “The key is to be No. 2.”
WMT’s online sales growth numbers were nowhere near AMZN’s numbers, but WMT still reported 11.8% digital sales growth in Q2.
WMT Turning The Corner?
One of the most difficult things for investors to identify is the exact inflection point when a struggling business turns the corner. WMT’s Q2 numbers seem to suggest that its turnaround strategy is working. But one quarter of good numbers is not a trend.
WMT’s same-store sales growth of 1.6% is its strongest quarterly number since 2013. WMT’s online sales growth represents the first quarterly uptick following nine consecutive quarters of declines.
Still, there are plenty of causes for concern. WMT’s U.K. operations remain a problem. Same-store sales in the U.K. plummeted 7.5% in Q2. Overall international sales were down 6.6%.
Will Jet.com Be WMT’s E-Commerce Solution?
Outside of WMT’s surprisingly upbeat Q2 earnings report, the biggest recent Walmart news has been a $3 billion buyout of Jet.com. Jet.com is only about a year old, but it has delivered impressive growth in that time. Jet.com’s sales have surged 168% from August 2015 to July 2016.
Jet.com won’t be taking down Amazon anytime soon. However, it could be the key to Walmart establishing a solid number two position in the U.S. e-commerce market.
First, Walmart added the creative vision of innovative Jet.com CEO Marc Lore. Forrester analyst Sucharita Mulpuru recently called Lore the biggest asset in Walmart’s acquisition.
“What Walmart needs is an innovation machine that consistently is putting out something new every week,” Mulpuru added.
Not only will Jet.com’s business model benefit from Walmart’s vendor relationships, Jet.com gives WMT something it has badly needed: an exciting e-commerce brand.
Walmart has spent decades building one of the strongest brands in the world. However, that brand does not represent technology, e-commerce and innovation. No matter what the company does to make Walmart.com better, it will be very difficult for the site to compete with Amazon on reputation.
Jet.com gives Walmart a blank state to get behind an exciting new brand that is synonymous with e-commerce.
Jet.com may have gotten off to a late start in its quest to be the top Amazon alternative, but it now has the full weight of Walmart behind it.
As of this writing, Wayne Duggan did not hold a position in any of the aforementioned securities.
