Walmart Inc.'s e-commerce growth flagged in the fiscal fourth quarter, contributing to an earnings miss that sent the company's shares down 9.4% to $94.98 by midmorning Feb. 20.
While Walmart has experienced e-commerce tailwinds since its August 2016 acquisition of Jet.com, company executives said in a conference call with analysts Feb. 20 that growth is beginning to slow.
The retail giant posted e-commerce sales growth of 23% in the fiscal fourth quarter ended Jan. 31, down from 50% growth in the fiscal third quarter ended Oct. 31, 2017. Overall, Walmart reported 40% e-commerce growth for the full fiscal year of 2018. The retail giant expects growth to remain even at 40% for fiscal 2019.
"The majority of the slowdown was expected as we fully lapped the Jet acquisition as well as created a healthier long-term foundation for the holiday," said Douglas McMillon, Walmart's CEO, president and director, during the conference call. "A smaller portion of the slowdown was unexpected as we experienced some operational challenges that negatively impacted gross [margin]."
McMillon said those "operational challenges" related to seasonal spikes in inventory in the company's fulfillment centers that meant regular merchandise "suffered as a result."
"We're learning how to deal with higher volumes and learning how to deal with a higher peak than what we had previously," he said.
Walmart will continue to focus on food and online grocery as it aims to continue growing its e-commerce segment. McMillon said the company aims to almost double the number of locations that provide online grocery pickup in fiscal 2019.
The company expects growth for Jet, especially, to slow as Walmart invests more heavily in its Walmart.com platform.
McMillon said the cost to acquire a new customer is cheaper with the Walmart brand. Jet, meanwhile, attracts a higher-income, urban and millennial consumer. He noted that Walmart will invest more in Walmart.com nationally while focusing on Jet.com in urban markets.
"Due to this change, Jet will not grow as quickly as it did in early days, but it will be well-positioned where we've chosen to focus the brand," he said.
Jet will go through "a period of adjustment" before it starts to grow again, McMillon said. "Jet plays a great role reaching parts of the country and selling in some cases some brands that are not ready to sell on Walmart.com."