Walmart's earnings disappoint, and it's pretty much all due to eCommerce

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WalMart stock continued its slide Wednesday, a decline that was kicked off Tuesday when the company's disappointing earnings were blamed almost completely on its e-commerce results.

The retailer's stock declined $10.67 Tuesday to close at $94.11, a drop of 10.18%. Several news outlets described the percentage decline as the worst for the company in almost 30 years. At 11:45 a.m. Wednesday, Walmart stock was at $91.67, a decline of $2.44, on a day when broader indexes were strongly higher.

On the raw numbers, Walmart's earnings for the fourth quarter of 2017 came in at $1.33 per share. The consensus before the earnings was $1.37, and Wells Fargo said it had projected $1.35. The decline came even as the company posted fourth quarter revenues of $136.3 billion, which was above the consensus projections. For the year, Walmart revenues topped $500 billion for the first time, but full year operating income at $20.4 billion was down from the $22.8 billion for full year 2016. 

None of those figures were as important as the company's eCommerce sales for the quarter. They rose 23%. That was a significant decline from a third quarter increase of 50%.

Walmart made its splash in online retailing in 2016, when it acquired online retailer Jet.com for $3 billion. (A year later, The Motley Fool wrote of the acquisition that it was an "undeniable success.")

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In a prepared statement that Walmart released in conjunction with the earnings, Walmart President and CEO Doug McMillon said most of the eCommerce decline was "expected, as we fully lapped the Jet acquisition as well as creating a healthier long-term foundation for holiday. A smaller portion of the slowdown was unexpected, as we experienced some operational challenges that negatively impacted growth."

More specifically, reports from news sources that listened to the earnings call Tuesday said the "unexpected" issues McMillon referred to dealt with inventory. MarketWatch quoted McMillon as saying said the inventory issues "harmed our basic in-stock on more everyday items and our basic in-stock for e-commerce suffered as a result. So we’re learning how to deal with higher volumes and learning how to deal with a higher peak than what we had previously.”

Despite that setback, Walmart is still projecting eCommerce growth at 40% in 2018.

Analysts were predictably critical. Wells Fargo held the company's stock at a Market Perform rating, but lowered its price target to $93 from $101, with Tuesday and Wednesday's decline getting the price near that level. "We continue to rate the shares Market Perform as the risk/reward at the current valuation is not favorable, in our view," Wells Fargo wrote. 

CFRA analyst Joseph Agnese cut his rating on Walmart stock from Strong Buy to Buy, with a 12-month price target of $109. And he remained confident in the company's eCommerce prospects. "We expect global e-commerce sales to rise significantly to over $22 billion in FY 19 ($16.0 billion in the U.S.) and become a key source for long-term growth," he wrote.