Walmart, Target Have Cracked The Online Sales Code, With Impressive Growth

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Big-box retailers Walmart (NYSE:WMT) and Target (NYSE:TGT) appear to have successfully cracked the code to boosting online sales. Failure in the race to capture consumers who increasingly don’t want to come to physical stores was not an option for these giants. And the latest earnings reports from both retailers showed these companies have established an impressive track-record to improve their online presence.

Target’s fourth-quarter earnings on Tuesday showed online sales rose 31%, marking the company’s fifth consecutive year of digital sales growth above 25%.

Walmart, Target Have Cracked The Online Sales Code, With Impressive Growth

WMT Weekly TTM

Walmart, the world’s largest brick-and-mortar retailer, has a similar story to tell. Its e-commerce sales surged 43% in the fourth-quarter, its eighth straight quarter of growth in e-commerce. For the current-year, the company is maintaining its 35% growth forecast, a slight deceleration but still quite an impressive pace.

A solid growth trajectory in these retailers’ online businesses removes a big drag on their share prices. Many analysts feared that the huge monetary resources these giants allocated for their online expansions would push costs higher and suppress their margins.

Walmart, Target Have Cracked The Online Sales Code, With Impressive Growth

TGT Weekly TTM

Walmart shares fell more than 5% in 2018, while Target stock weakened slightly during the period when the U.S. consumers opened up their purse strings, helped by the Trump Administration’s tax cuts and a robust economy. Both stocks have rebounded strongly in 2019 with Walmart surging 13% to $98.34 and Target 17% to $76 a share at the Tuesday close.

E-Commerce Success Fueling Gains

Over many past quarters, these retailers have proved that their huge brick-and-mortar presence gives them an advantage that no other online competitor can match. Walmart offers free, nationwide two-day shipping on thousands of household goods. It expects to be able to reach 40% of U.S. households with grocery delivery by the end of this year.

The company is quickly expanding its click-and-collect services. Last year, it added about 1,000 grocery pickup locations, and reached nearly 800 grocery delivery points.That’s a serious challenge to Amazon (NASDAQ:AMZN), which offers pickup from Whole Foods in 22 cities.

Target, on the other hand, is benefiting from its $550-million acquisition of a grocery delivery startup Shipt Inc. in 2017. The retailer is now offering consumers the option to order online and pick up in store.

At the core of its e-commerce success is the company’s ability to use its massive store network as warehouses to serve its online orders. Three-quarters of digital sales for its fourth quarter were fulfilled by stores, giving the company an immense power to satisfy customers and cut costs.

Bottom Line

With these top retailers showing consistent success in their e-commerce push, it’s hard not to get excited about their future prospects. We believe their shares—Walmart closed yesterday at $98.26 while Target finished the trading day at $76.90—will continue to benefit from their expanding online presence combined with their strong brick-and-mortar operations. Both Walmart and Target pay growing dividends, with yields currently at 2.16% and 3.37% respectively, that offer a good hedge should the economy slow.

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