By Phil Wahba
August 16, 2018

Who says traditional retailers can’t compete with Amazon.com?

Walmart Inc (wmt) reported on Thursdaythat its U.S. comparable sales rose 4.5% in the second quarter, their fastest clip in a decade, sending shares up 9% and showing that the mass merchant is holding its own against its primarily digital rival.

The world’s largest retailer clearly got a boost from the best consumer spending environment in memory. But it has done a lot to help itself in recent years. Walmart’s efforts have included moves like giving workers raises and more training, remodeling its grocery areas, making grocery pickup of online orders available at 1,800 stores so far, updating its app, better integrating its stores and e-commerce, and vastly expanding its e-commerce offering.

On top of the sales gains, most encouraging for Walmart is that store visits in the U.S. were up 2%, as was how much people spend per trip. Walmart U.S. CEO Greg Foran told reporters on a briefing that new shoppers were coming in and existing shoppers were typically adding an item to their shopping cart nowadays. Walmart’s momentum extending to its online business where U.S. sales rose 40%, a crucial return to form.

On the strength of the second quarter, Walmart said it now expects its annual comparable U.S. sales to be up 3% from an earlier forecast of 2%.

“Customers tell us that they feel better about the current health of the U.S. economy as well as their personal finances,” said Walmart Chief Executive Doug McMillon in an earnings release. “They’re more confident about their employment opportunities.” The National Retail Federation recently raised its forecast for 2018 industry sales in the United States.

At the same time, it’s clear Walmart cannot take its foot off the gas pedal. Walmart.com CEO Marc Lore told reporters to expect online profits to be pinched as it continues to invest in its e-commerce firepower. Walmart’s overall business is contending with rising commodity and transportation costs, sending second quarter operating income down 3.7% to $5.8 billion.

Gross margins fell for the fifth consecutive quarter, slipping 0.17 of a percentage point. And Walmart expects e-commerce loses this year to be higher than last.

International sales rose were 3.1% to $29.2 billion, excluding currency fluctuations. Walmart has been streamlining its international business of late to focus more on booming markets like India and China. It has sold an 80% stake in its Brazilian operations to private equity firm Advent International, and earlier this year, sold a majority stake in its British ASDA business to J Sainsbury. It also paid $16 billion for a majority stake in Indian e-commerce firm Flipkart.

The company reported a net loss for the quarter ended July 31 of $861 million, or 29 cents a share, compared with net income of $2.9 billion, or 96 cents a share, a year ago. But excluding some one-time items such as a loss on the sale of its majority stake in Walmart Brazil, Walmart earned $1.29 per share, easily beating analysts’ expectations of $1.22 per share, according to Thomson Reuters I/B/E/S.

Total company revenue increased 3.8 percent to $128 billion, above analysts’ estimates of $125.97 billion.

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