Grocery sales rose the most in nine years thanks to improved fresh-food offerings, and web revenue growth accelerated from the previous period.

(Bloomberg)—Walmart Inc., No. 3 in the Internet Retailer 2018 Top 1000, bounced back from a lackluster start to the year with its strongest sales gain in more than a decade fueled by its grocery business, brightening the outlook for the overall retail sector.

U.S. e-commerce sales rose 40% in the quarter compared with last year, according to management commentary from CEO Doug McMillon. In 2017, second-quarter sales rose 60% year over year.

Since the beginning of the year, McMillon said Walmart added 1,100 new brands to its e-commerce site because consumers are looking for more assortment online.

However, e-commerce will result in larger losses than last year for the retail giant, according to chief financial officer Brett Biggs. Investments like the new Store No. 8, site enhancements and new technology will eat into profits from rising e-commerce sales. Biggs says the investments will incur short-term costs in exchange for long-term growth.

Sam’s Club e-commerce quarterly sales growth hit 31% year over year, according to Biggs.

advertisement

Comparable sales at U.S. Walmart stores rose 4.5% in the three months ended in July, the company said Thursday, more than double analysts’ estimates. Grocery sales rose the most in nine years thanks to improved fresh-food offerings, and web revenue growth accelerated from the previous period. The world’s biggest retailer also boosted its full-year forecasts for comparable sales and adjusted profit.

It was “a banner quarter on multiple fronts,” Charlie O’Shea, an analyst at Moody’s Investors Service Inc., said in a note. “The food business continues as a bright spot.”

Walmart has benefited from improved consumer sentiment and tax cuts that have put more money in Americans’ pockets this year. U.S. retail sales rose by more than forecast in July, as shoppers snatched up apparel and school supplies. But investors are still somewhat skeptical that bricks-and-mortar retailers can keep pace with online rivals like Amazon.com Inc. (No. 1).

“We’re pleased with how customers are responding to the way we’re leveraging stores and e-commerce to make shopping faster and more convenient,” Walmart CEO Doug McMillon said in a statement. “We’re continuing to aggressively roll out grocery pickup and delivery in the U.S., and we recently announced expanded omnichannel initiatives in China and Mexico.”

Bright spots for Walmart

The retailer now offers curbside pickup of online grocery orders in 1,800 U.S. stores, and Biggs said that the service is bringing in new customers.

advertisement

Another bright spot in the second quarter was the Sam’s Club warehouse chain, whose comparable-store sales increased 5%, more than double analysts’ estimates, marking the strongest quarter in six years.

Biggs said the retailer benefited from improved weather in May, the first month of the quarter, which led to the biggest quarterly gain in customer traffic in more than six years. Some customers made fewer shopping trips during the cold, wet April.

“Customers tell us that they feel better about the current health of the U.S. economy as well as their personal finances,” Biggs said. “With warmer weather, sales of seasonal items like pools, air conditioners, swimwear and gardening supplies really popped in May compared to April. No doubt we were aided by tailwinds during the second quarter.”

For the full fiscal year, Walmart expects comparable sales, excluding fuel, of about 3% at both its namebrand stores and at Sam’s Club. It had earlier been expecting growth off at least 2% at Walmart stores and slightly negative to flat performance at the bulk chain.

The retailer now expects full-year adjusted earnings per share of $4.90 to $5.05, excluding the sale of its majority stake in Walmart Brazil, losses related to its JD.com investment in China and tax adjustments. That’s up from the $4.75 to $5.00 it had been expecting previously.

advertisement

It had earlier said it would have to trim its full-year profit forecast to account for its acquisition of a majority stake in Indian e-commerce merchant Flipkart, which hasn’t yet been incorporated into the forecast.

“If you are a Walmart bull, there are many reasons to be bullish today,” Brian Yarbrough, an analyst at Edward Jones, said in an interview. “They did benefit from pent-up demand, but let’s give ’em credit, it was a very solid quarter.”