Walmart grounds Jet.com, but the $3.3 billion acquisition still paid off

Daniel Fowler
May 20, 2020

It reported a first-quarter profit of $3.99 billion, up about 4 percent from a year ago, on Tuesday. Walmart paid $3.3 billion for Jet.com in 2016, and continued to invest heavily in the site in hopes that it would help win over younger, more affluent, big-city shoppers from Amazon.

"The decision to withdraw guidance reflects significant uncertainty around several key external variables and their potential impact on our business and the global economy, including: the duration and intensity of the COVID19 health crisis globally, the length and impact of stay-at-home orders, the scale and duration of economic stimulus, employment trends and consumer confidence", said Brett Biggs, Walmart's chief financial officer.

"Having a wide range of fulfillment options, including delivery to home, collection from store - and by using stores for fulfillment - allowed Walmart to ramp up capacity in a way that many other players struggled to do", said Neil Saunders, managing director at GlobalData Retail.

It should come as little surprise that Walmart did well during the first couple months of the COVID-19 pandemic in the USA, with an 8.6 percent increase in total revenue and an eye-popping 74 percent increase in revenue from its self-branded e-commerce platform. Walmart doesn't really exist in the Big Apple, so Jet could have been a way to hop into that market under a different name. J.Crew, J.C. Penney and Stage Stores have also remained closed. This business was up 74% in the first quarter approaching $50 billion by the end of the year.

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Target and Macy's will release their financial results this week as well.

Online behemoth Amazon reported last month soaring sales in the first three months of the year, but profits slumped 29% because of extra costs related to the pandemic like paying workers overtime to keep up with a surge in orders and disinfecting its vast warehouses where orders are packed and shipped.

McMillon said during this unprecedented growth period Walmart is seeing more and more general merchandise being purchased online for pickup in-store or home delivery. He twice mentioned in remarks to analysts that the company should stop calling its store-based offering "online grocery". In stores, shoppers visited less frequently, but they spent nearly 17% more per transaction, the company said on Tuesday as it became one of the first to report earnings from the months of the pandemic. The program has been tested in 100 stores since mid-April and will be expanded almost 2,000 stores in the following weeks. Today, it reported first-quarter profits that rose 3.9% to $3.99 billion, or $1.40 per share. Group revenues, Walmart said, rose 8.6% from past year to $134.6 billion, firmly ahead of analysts' estimates of a $131.47 billion tally. That exceeds the per-share earnings of $1.10 that Wall Street was looking for, according to a survey by Zacks Investment Research.

Walmart's shares fell $2.71, or 2.1%, to close at $124.95 Tuesday. The stock has appreciated about 8% so far this year.

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