Walmart surges heading into holidays

Posted November 15, 2018 7:30 a.m. EST

— Walmart continues to grow sales, increasing investors' confidence in the company as the upheaval of the retail industry continues.

Sales at stores open for at least a year increased 3.4% last quarter compared to a year earlier. Digital sales grew 43%. Walmart (WMT) also raised its guidance heading into the holiday shopping stretch.

"Walmart is flexing that store network and demonstrating it is going to be a significant player online," said Moody's lead retail analyst Charlie O'Shea.

Walmart was coming off its fastest sales growth in more than a decade. It has been lifted by healthy consumer spending and a strong US economy.

"We have momentum in the business as we execute our plan and benefit from a favorable economic environment," CEO Doug McMillon said in a statement.

The company has been operating a two-track strategy designed for different customer segments: It's offering cheaper and more convenient ways to buy groceries for its low-and-middle income base at stores, while scooping up high-end digital brands and retailers— including Eloquii and Bare Necessities last quarter — to draw wealthier shoppers online.

Walmart's spread-out store base— 90% of the population lives within 10 miles of a Walmart — is its biggest competitive advantage to reach mid-income shoppers.

The store base gives shoppers a menu of options to choose from, such as delivery, curbside pickup and pick up in new towers in stores. Walmart will expand grocery curbside pickup to around 3,100 stores next year and grocery delivery to 60% of the country.

Walmart also has a redesigned website. The redesigned page not only helps Walmart appeal to wealthier customers, but convinces top brands to sell on it. For example, Walmart announced a partnership with Advance Auto Parts last quarter for a dedicated storefront on the site.

To appeal to younger and wealthier shoppers in cities, Walmart has rolled out a relaunched, the online marketplace it bought two years ago from Lore for $3.3 billion.

Jet is offering speedy grocery delivery and adding premium brands like Nike, Apple, Blue Apron and Bonobos that can't sell on Walmart's main site yet.

Walmart does not need to beat Amazon (AMZN) online since it already gets close to $500 billion in sales from its stores.

"The race online is not to catch Amazon. That's like trying to chase a Ferrari on foot," O'Shea said. Instead, Walmart needs to become an alternative to Amazon. Here, it's fighting against resurgent retailers like Target, Best Buy, and Kohl's.