Executives did not offer concrete information about the early performance of the Walmart+ or provide financial guidance for the balance of the fiscal year.

Walmart Inc. had a busy third quarter as the world’s largest retailer continues navigating through the COVID-19 era. And while year-over-year ecommerce growth was slower than in the second quarter, online sales still grew rapidly.

U.S. ecommerce sales for Walmart (No. 3 in the 2020 Digital Commerce 360 Top 1000) grew 79% in the third quarter of fiscal 2021, which ended Oct. 31. Meanwhile, comparable sales increased by 6.4% compared with the year-ago quarter. Ecommerce sales contributed about 570 basis points (or 5.7 percentage points) to the comparable sales growth, Walmart reported.

During the third quarter, Walmart launched its Walmart+ membership program, which offers unlimited free delivery benefits, “Scan & Go” automated checkout in stores and discounts on fuel. Customers using Scan & Go can scan their items on their smartphones as they shop and pay using the retailer’s Walmart Pay service. Among other changes, the retailer announced a “Black Friday Deals for Days” promotion that will offer customers Black Friday deals during three separate sales events in November.

Walmart is fulfilling online orders in a flexible way for the holiday season, Walmart CEO Doug McMillon said during a Nov. 17 conference call with analysts. “For example, we’ve turned on nearly 2,500 stores to fulfill online orders. We can quickly flex this number as the holiday season progresses, to help relieve pressure on our ecommerce fulfillment centers, if necessary,” he said, according to an earnings call transcript from Seeking Alpha.

Walmart also recently announced it will create “pop-up ecommerce distribution centers” in 42 of its regional distribution centers, which ordinarily provide pallets of goods to Walmart stores.

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The retailer says it struggles to keep key items such as bath tissue and cleaning supplies in stock. “Our merchant and replenishment teams are working hard to ensure we have products available for our customers. In-stock levels have improved from Q2, but we’re still below where we want to be,” McMillon said.

Citing the uncertainty caused by the COVID-19 crisis, Walmart declined to provide a financial fiscal for the fiscal year as a whole.

Despite some problems keeping high-demand items in stock, Walmart’s supply chains are holding up well during the pandemic, says Randy Mercer, vice president of global product management at product information provider 1WorldSync.

“Walmart’s earnings revealed that ecommerce is still climbing, and that’s partly thanks to the retailer’s supply chains for keeping inventory on the shelves, both in store and online,” Mercer says. “While many retailers and grocers have run into obstacles and shortages during the first wave of COVID-19, Walmart has been able to provide and maintain a huge catalog of products for shoppers thanks to inventory control and planning.”

Walmart, a mass merchant, is also America’s largest grocery seller.

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Early days for Walmart+

Executives did not offer any concrete information about the early performance of the Walmart+ program, which launched Sept. 15, but expressed optimism. Walmart+ costs $12.95 per month or $98 for a year. Members save five cents per gallon on fuel at Walmart  and can get member prices at Sam’s Club fuel centers. Other benefits include Scan & Go and free unlimited deliveries.

In response to an analyst’s question, McMillion said Walmart is “excited about the results” for Walmart+, but it was too early to share details.

“It’s really early on. We just launched this in the middle to the late—latter part of Q3, so we don’t have anything yet. We’re still learning. We’re excited about the offer. We know customers are excited about the offer,” he said.

McMillon also said the benefits now available to Walmart+ members are just a start but did not provide details about the kinds of services Walmart might add to the program. “Over time, we’ll evaluate the program against our broader set of assets with the aim of improving the value proposition and deepening our relationship with customers, including earning a greater share of wallet,” McMillon said.

In a Digital Commerce 360 survey of 604 frequent online shoppers conducted in mid-September, 48% of consumers said they were somewhat or very likely to join Walmart+. Even 43% of Amazon Prime members say they are intrigued by Walmart’s offer. Overall, 41.1% of those surveyed said they were very (14.9%) or somewhat (26.2%) likely to join Walmart+. But the interest was higher among avid web shoppers: 47.7% of consumers who shop online at least once a week said they are very (19.2%) or somewhat (28.5%) likely to sign up for Walmart+.

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A recent survey of more than 20,000 U.S. consumers from online research platform Pipslay found 11% of Americans subscribed to Walmart+ within two weeks of its launch.

Walmart+ is probably already providing a significant boost to Walmart’s online business, says Tom Caporaso, CEO of loyalty program management company Clarus Commerce.

“It’s not surprising that Walmart’s earnings topped expectations, especially as its ecommerce business continues to soar during the pandemic,” Caporaso says. “While Walmart didn’t reveal any numbers on loyalty, growing ecommerce is likely due to rising enrollment in Walmart+, which provides instant discounts and fast delivery options for consumers.” He added that Clarus’ data says 54% of consumers are interested in enrolling in premium loyalty programs, specifically for grocery.

Profitability improves

Despite the added costs of stocking all those goods and hiring more workers, Walmart’s gross profit margin added 50 basis points, or half of a percentage point, thanks to lower operating expenses and decreased COVID-19-related costs. The increase included “positive contributions from each operating segment,” Walmart reported. Brett Biggs, chief financial officer, said operating income was up 9.9% for the quarter during the conference call. That improvement included a reduction in losses in Walmart’s ecommerce operations, he said, but did not provide details.

“Customers are resilient, and they certainly continue to shop,” Biggs said in an interview with Bloomberg News. With the company expanding operating hours and a delayed back-to-school shopping season gaining steam, “momentum really picked up through the quarter,” he said.

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During the fiscal third quarter ended Oct. 31, Walmart reported:

  • Total revenue was $134.71 billion, an increase of 5.2% compared with $127.99 billion a year earlier. Excluding currency fluctuations, total revenue would have increased 6.1% to reach $135.78 billion, Walmart says.
  • Consolidated operating expenses as a percentage of net sales decreased 18 basis points. Incremental expenses related to COVID-19 were about $600 million.
  • Net income was $5.14 billion, up 56.2% from $3.29 billion for the same period a year earlier.
  • Consolidated operating income was $5.78 billion, an increase of 22.5% compared with $4.72 billion a year earlier

For the nine months ended Oct. 31, Walmart reported:

  • Total revenue was $407.07 billion, up 6.5% from $382.29 billion for the comparable period a year earlier.
  • Net income was $15.60 billion, up 45.3% from $10.74 billion a year earlier.
  • Operating cash flow for the year to date increased about $8.3 billion versus last year to almost $23 billion.

Percentage changes may not align exactly with dollar figures due to rounding.

Bloomberg News contributed to this report.

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