Walmart's US Q3 Sales Up 6%, as COVID-19 Caused 'Headwinds and Tailwinds'

With COVID-19 accelerating a retail shift to online and digital sales, Walmart saw a 79% spike in e-commerce net sales growth in Q3, said CEO Doug McMillon in a Tuesday investor call. “We’re convinced that most of the behavior change will persist beyond the pandemic.” He cited the retailer’s omnichannel retail strategy allowing consumers to shop the way they’re most comfortable: via in store, curbside pickup or online delivery.

McMillon again said customers who shop Walmart both in store and online spend more when shopping in store, according to pre-COVID-19 statistics. “Once they’re engaged in the digital relationship, and they’re shopping us holistically like that, the value of that customer relationship goes up.” Walmart doubled employees working the in-store pickup business to 140,000 to accommodate customer preferences, said Chief Financial Officer Brett Biggs. Some 3,500 stores now have in-store pickup.

Consistent with prior quarters, Walmart's office electronics and TV sales rose in the mid-single digits in Q3, said the company in a Tuesday earnings report. Company revenue rose 5.2% vs. Q3 2019 to $134.7 billion. U.S. comparable sales advanced 6.4%; net sales climbed 6.2% to $88.4 billion. Coronavirus costs totaled $600 million.

Walmart didn’t provide Q4 guidance Tuesday, citing health-related uncertainties and their effect on the global economy. Q4 “will feel different from past years as customers shop differently and shopping events are spread out," said Biggs. McMillon believes customers want to find a sense of normalcy in this “unique” holiday season, even if they can’t be with relatives in the usual way. He expects the trend to play out in consumption patterns, saying customers will want to buy items that help them celebrate and decorate. Looking to 2021, McMillon expressed optimism about a second half that “starts to look more normal. We still have a ways to go to get there.”

The virus brought “tailwinds and headwinds,” including strong sales on “stock-up buying” and continued stimulus spending in the quarter, Biggs said, though to a lesser extent than in first half 2020. Strong sales and gross margins “more than offset” COVID-19 costs, he said.

Walmart saw continued trip consolidation in the quarter, fattening the average ticket by 24%, while transactions fell by about 14%, said Biggs. Customer transactions began to improve in the quarter after the retailer extended store hours from 8 p.m. to 10 p.m., and 11 p.m. in some markets; Walmart expects the trend to continue as it expands store hours further. On whether it will go back to 24-hour store hours, Walmart U.S. CEO John Furner cited employee safety considerations, which precipitated shorter hours. “We’ll operate 7-10 or 7-11 depending on what the store is able to handle” in staffing and according to local regulations, he said.

Merchant and replenishment teams are working hard to have products available on shelves for the holiday quarter, said Furner. In-stock levels are up from Q2, though “still below where we want them to be.” Some 2,500 stores have been “turned on” as fulfillment centers for online orders, he said. “We can quickly flex this number as the holiday season progresses to help relieve pressure on our e-commerce fulfillment centers, if necessary.”

On Walmart’s commitment to automation -- following reports the retailer ended a contract for shelf-scanning robots in some stores because humans could handle the job just as fast -- McMillon said automation will be a “big part of what we do” in the future. The company continues to do pilots for automation to find ways to improve efficiency, he said. Automation will play a role “in helping the store experience get better as it reduces the amount of work associates have to do at the store level just moving freight around,” he said.

Walmart is “changing and shaping its business model,” said McMillon, saying the way it makes money in the future will be “more multifaceted.” Areas include Marketplace, advertising, Walmart+ and Walmart Fulfillment Services. Customer relationships are a “great opportunity” to be monetized in various ways, he said.

McMillion said Walmart has a new requirement for U.S.-based officers to complete racial equity training, and the company launched the first-ever midyear diversity report. On the environment, Walmart set a goal to become a “regenerative company,” he said: “We want to do more than slow down the damage to our planet. We want to reverse that process and actually add back and strengthen nature.” He encouraged suppliers to do the same. Walmart set a date of 2040 to target zero emissions without relying on carbon offsets in its operations and fleets as part of a “science-based target for emissions reduction.”