Walmart Investors Hang Hopes on Retail Media as Sales Cool

Walmart investors are banking on the company's ad business, Walmart Connect, to boost profits as same-store sales growth has slowed and the stock price has dipped due to cautious expectations for the year, according to Reuters on August 18. Walmart Connect has aided Walmart in maintaining margins and counterbalancing low prices as shoppers prioritize value in groceries and essentials, the report stated.

The same-store sales growth in the United States decelerated to 4.1% in the quarter concluding April 30, while Walmart Connect surged 44% during the same period, marking the fastest rate since Walmart began tracking the metric in 2023. Walmart Connect's expansion can be attributed to the expansion of the company's membership program, which supplies the customer data required for its advertising platform, the report added.

Walmart Connect operates by leveraging customer data to assist brands in targeting shoppers on Walmart's website, app, and physical stores, as well as by displaying whether ads result in purchases. Experts anticipate a comparable growth rate for Walmart Connect when the company discloses quarterly earnings this week, while same-store sales growth is anticipated to fall below 4% for the first time in over two years, as per the report.

Although Walmart Connect constitutes a small portion of Walmart's $713 billion in annual revenue, its margins contribute one-third of operating income, and analysts estimate around 70% gross margins for the business, the report noted. Amazon's ad business remains larger, but Walmart Connect is gaining market share, with impressions increasing 17% in the second quarter compared to 9% for Amazon. Earnings announcements from Walmart and other retailers this week are expected to shed light on consumer financial situations.