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Slowing online sales send Walmart’s stock tumbling nearly 10 percent

Shares of Walmart stock fell nearly 10 percent on Feb. 20, their lowest level since October 2015. (Kamil Krzaczynski/Reuters)
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For months, Wall Street has rewarded Walmart for engineering the kind of e-commerce turnaround that has eluded so many traditional retailers. But when the merchandising giant reported Tuesday that online growth had slowed during the critical holiday season, investors showed little patience, knocking down Walmart’s stock nearly 10 percent.

Walmart on Tuesday posted mixed results for the last three months of 2017. Sales rose 4.1 percent to $136.3 billion, the company said, but profits fell to $2.4 billion from $3.9 billion a year earlier. More troubling to some, online sales grew 23 percent in the fourth quarter, down from 50 percent in the previous quarter.

Wall Street had expected more from the Bentonville, Ark.-based giant, which has been investing heavily in recent years to compete with Amazon’s online prowess. Shares of Walmart stock tumbled to $94.84, their worst percentage drop since October 2015.

But some analysts remained optimistic that Walmart was moving in the right direction. The company continued to attract more shoppers, they said, and got existing ones to spend more. And it continued to build its e-commerce business, albeit at a slower pace than that which investors had become accustomed to.

Walmart, gaining on Amazon, says its online sales grew 50 percent

“Even in an era of stiff competition, Walmart is becoming more and not less relevant to the American consumer,” Neil Saunders, managing director of GlobalData Retail, wrote in a note to investors. “It is following the same strategy as Amazon: taking less profit today for the prospect of a stronger business tomorrow.” (Jeffrey P. Bezos, the founder and chief executive of Amazon.com, owns The Washington Post.)

Walmart — which last year had $500 billion in annual revenue, nearly three times Amazon.com’s $178 billion — has spent billions of dollars building up its e-commerce operation in recent years. It purchased online retailer Jet.com for $3.3 billion in 2016 and has since gobbled up a number of other niche sites such as Moosejaw, Bonobos and ModCloth, aimed at attracting younger, more affluent shoppers. The strategy has worked, analysts said: More people are buying online on Walmart’s sites, and those who do tend to spend nearly double what in-store shoppers do. Walmart’s annual online sales rose 44 percent to $11.5 billion last year, and the company says it expects that figure to grow another 40 percent this year.

“The fact that Walmart is talking about 44 percent online growth for the year — that should be the focus,” said Charlie O’Shea, an analyst for Moody’s. “The results we’re seeing from the company are really pretty solid.”

Walmart executives say they are doubling down on a two-part strategy to boost online sales, building up Jet.com in major cities and promoting Walmart.com in other parts of the country.

“Walmart is just a really well-known brand for value throughout the country — when you get into Oklahoma, Texas and the middle of the country, it just makes a lot of sense to invest in that brand rather than investing to introduce a brand that’s less familiar,” chief executive Doug McMillon said in a Tuesday call with analysts. “On the other hand, if you take the New York metropolitan area as one example, the Jet brand is really well known, has a lot of traction, has appeal to urban, millennial, higher-income customers.”

Americans are buying more food at Walmart

Walmart, the country’s largest private employer, recently announced plans to raise starting wages from $9 to $11 an hour. It also handed out bonuses to some employees and expanded its parental-leave policies for hourly workers, which the company said it was able to do in large part because of savings from the recently passed tax plan. On Tuesday, McMillon said a lower tax rate is likely to give the company a $2 billion cash benefit this year.

“We’ve consistently talked about investing in the business for the long term while balancing near-term results,” he told analysts. “As tax reform has taken shape, we took the opportunity to step back and assess various aspects of the business, including potential investments. We will continue to be aggressive, but thoughtful, to ensure we win long-term.”

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