Walmart surges heading into holidays

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Walmart continues to grow, increasing investors' confidence in the company's ability to navigate upheaval in...

Walmart continues to grow, increasing investors' confidence in the company's ability to navigate upheaval in retail.

Sales at stores open for at least a year increased 3.4% last quarter compared to a year earlier, while digital sales expanded 43%. Walmart (WMT) also raised its guidance for the full year: It expects same-store sales to expand by at least 3%.

Walmart's high expectations heading into the holidays contrasted against Amazon, its biggest competitor. Last month, Amazon warned of a weaker-than-expected holiday, driving its stock down.

"Walmart is flexing that store network and demonstrating it is going to be a significant player online," said Moody's lead retail analyst Charlie O'Shea.

Walmart was coming off its fastest sales growth in more than a decade. Like other big retailers, such as Home Depot and Macy's this week, Walmart has been lifted by rising wages and low unemployment.

"Consumers remained in good shape," CFO Brent Biggs said on a call with reporters Thursday. "Certainly, this kind of environment everybody likes."

Facing tough competition during the holidays, Walmart is outfitting store workers with mobile checkout scanners to ring up customers on the spot. It is also adding detailed digital store maps to its mobile app to allow shoppers to quickly find aisles and products.

Executing a strategy

Walmart has recently been operating a two-track plan designed for different customer segments.

It's offering cheaper and more convenient ways to buy groceries for its low-and-middle income base at stores, while scooping up high-end digital brands and retailers— including Eloquii and Bare Necessities last quarter — to draw wealthier shoppers online.

Walmart's spread-out store base is its biggest competitive advantage to reach mid-income shoppers. 90% of the US population lives within 10 miles of a Walmart. It has poured investments into cleaning up those stores and ensuring items are in stock on the shelves.

The store base allows Walmart to offer time-pressed shoppers new options to choose from, such as delivery, curbside pickup and pickup in automated towers inside hundreds of stores.

Walmart will expand curbside pickup to around 3,100 stores by next year and grocery delivery to reach 60% of the country.

"We feel that we get a good halo effect around it," Walmart US CEO Greg Foran said about the new improvements in online grocery.

Walmart's clothing and toy sales gained last quarter, too. It has been growing its toy selection to pick up the market Toys "R" Us left behind when it filed for bankruptcy.

"Toys are going to continue to be a big focus for us," Walmart US CEO Greg Foran told reporters.

The company is taking several steps online.

It has redesigned its website to appeal to wealthier customers and convince top brands to sell on it. For example, Walmart announced a partnership with Advance Auto Parts last quarter for a dedicated storefront on the site.

To appeal to younger and wealthier shoppers in cities, Walmart last quarter relaunched Jet.com, the online marketplace it bought two years ago from Lore for $3.3 billion.

Jet is offering speedy grocery delivery and adding premium brands like Nike, Apple, Blue Apron and Bonobos that can't sell on Walmart's main site yet.

Walmart does not need to beat Amazon (AMZN) online since it already gets close to $500 billion in sales from its stores.

"The race online is not to catch Amazon. That's like trying to chase a Ferrari on foot," O'Shea said. Instead, Walmart needs to become an alternative to Amazon. Here, it's fighting against resurgent retailers like Target, Best Buy, and Kohl's.

But it has a long way to go. Walmart has to ramp up the number of items it sells online while also finding a way to make money off them. Walmart mainly offers highly popular items right now, but those sales carry lower profit margins.

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