“With Walmart’s e-commerce business humming the way it is and the way the company’s been able to integrate it with the store base, with curbside and everything else, this is a tough one,” says Moody’s retail analyst Charlie O’Shea. “This is really setting a high bar for brick and mortar retail and it’s giving Amazon something to really think about.”

Charlie O’Shea, retail analyst at Moody’s, and Bill Simon, former president and CEO of Walmart, discussed Walmart’s blowout quarterly results:

Walmart Is Going To Be Tough To Stop

This is just a phenomenal quarter for Walmart. It’s good on all fronts. It really is an indicator that the consumer is still there. Once we sort through all this COVID stuff the consumer is willing to spend. I’m particularly impressed by Walmart’s operating income. I’ve been watching that for several years and it’s been challenged as they move their business to digital and to e-commerce. Big growth and operating income have been under pressure.

Walmart grew its operating income by almost nine percent. Even adjusted for currency it is in the mid-teens. That’s phenomenal. Brett Biggs is one of the best CFOs in the country in my view and they manage the company very well. It looks like they’ve been able to get the e-commerce growth under control in a way that can deliver some pathway to profitability. If they can do that they’re just going to be tough to stop.

Walmart Ecommerce Business Is Humming

Every quarter it looks like they’re running on all cylinders and now the engine just keeps getting bigger. We’ve gone from an eight-cylinder engine to a 12-cylinder engine. With the e-commerce business humming the way it is and the way the company’s been able to integrate it with the store base, with curbside and everything else, this is a tough one. This is really setting a high bar for brick and mortar retail and it’s giving Amazon something to really think about.

It’s how does Amazon compete with Walmart not how does Walmart compete with Amazon? With an almost doubling of online revenue for this quarter we’re starting to see this battle really escalate. If you were open you obviously had advantages. That’s not exactly a lightning bolt coming out of the sky. But I think what we’re seeing with the consumer is they have money they’re willing to spend and they weren’t able to spend it for a while because a lot of places weren’t open. Now that things are starting to reopen there’s a lot of pent-up demand here.

Consumers Are Shifting Spending And Walmart’s Benefitting

During the early days of the pandemic during lockdowns no one’s buying pants, no one’s buying blouses, and no one’s buying tops because you can’t eat those and you also can’t use them to clean your house. So people had kind of shifted their demand towards the essentials and the consumables. Now they’re moving in another direction and Walmart’s benefiting. They benefited from the early blast of spending and now they’re benefiting as it expands. The margins going up indicates they’re selling a lot of other non-consumable stuff because those margins are lower.

I also cover the auto retailers and the auto retailers showed an awful lot of resilience so far this year. Q2 numbers for my rated universe were much better than we expected and we didn’t expect them to be that bad. The consumer clearly has money and the stimulus obviously helps the folks that are still employed are out there and still spending. That portends well for Target tomorrow and Best Buy next week. Home Depot also popped a big number today. The essential type retailers are still going to be benefiting.