Seven surprising things from Walmart’s Q2

While the dust continues to settle from Walmart’s disappointing showing in the second quarter, it is worth noting positive developments and intriguing initiatives in key areas that got lost in the shuffle.

These positive developments, which indicate longer term opportunity, tend to get lost in the crush of media coverage around Walmart’s financial results. The company’s status as an economic bellwether ensures that its performance is followed as closely by the market as any number of other indicators so the immediate focus on sales and profit difficulties is understandable. However, the transcript of senior executive-prepared remarks featured some noteworthy developments, including the following:

The most startling revelation during a quarter in which same store sales at U.S. stores declined 0.3% following a first quarter decline of 1.6% was the strength of the company’s  apparel and home business. Those categories delivered low single digit positive same store sales growth that Wal-Mart Stores, Inc., president and CEO Mike Duke characterized as, “very good.” When was the last time anyone at Walmart was able to say that about apparel and home?

The “Fresh-Over” marketing campaign worked. Walmart touted improved produce quality during the quarter and shoppers responded, causing comps to rise in the mid-single digits and accelerating to high single digits in July. Walmart shoppers apparently bought beer and other alcoholic beverages with their fruits and vegetables as the adult beverage category produced a high single-digit comp. 

Self-checkout is expanding quickly and providing Walmart a way to upgrade the store experience. The company said it added 1,400 self-checkout lanes during the quarter, utilization is growing at 4% and more installations are coming in the third quarter.

Small formats are working well. Don’t be surprised come October 15 when Walmart hosts a meeting for analysts if the company doesn’t expand Neighborhood Market and Walmart Express more rapidly. Walmart opened more Neighborhood Market stores in the second quarter than at any time in the format’s 15-year history, including 12 stores on a single day. A total of 35 small stores opened during the quarter. Same-store sales growth is said to be solid at Neighborhood Market and that is also true as the smaller and newer Walmart Express stores, which produced a double-digit comp.

Walmart doesn’t break out e-commerce sales, but did say they grew more than 30% during the first two quarters. The growth was led by the performance of a grocery delivery company it owns in China called Yihaodian and an e-commerce business in Brazil that grew 50%. Watch out, Amazon. If Walmart can apply the lessons learned in China to U.S. operations and begin pulling orders from stores, it could broaden its appeal to U.S. shoppers who live to save money but don’t want to frequent a supercenter. Walmart is already shipping orders of other merchandise categories directly from stores and the capability is gaining momentum.

Sam’s Club was the best performing division and produced a comp increase of 1.7% that was within its guidance range thanks to an “instant saving” coupon initiative. During the third quarter Sam’s plans to open 13 clubs — which hasn’t happened in a very long time.

On the e-commerce front, Walmart.com said it hired a Google-like 200 employees at its San Bruno, Calif., headquarters. “People in Silicon Valley are excited to come to Walmart,” said Walmart global e-commerce president and CEO Neil Ashe. The digital division also made four acquisitions of curious-sounding companies such as Tasty Labs, OneOps, Inkiru and Torbit. During the second half of the year, Walmart.com expects to double its product offering after doing so in the first half of the year as well.