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Walmart reports lower-than-expected Q4 earnings, despite e-commerce sales growth of 35%

Walmart’s holiday quarter didn’t perform as expected. That’s the big news today from the retailer’s weak Q4 2019 earnings, which saw revenue of $141.67 billion versus the $142.55 expected and adjusted earnings per share of $1.38 versus the $1.44 expected. The company cited a number of factors, including “softer” than anticipated holiday sales in U.S. stores — particularly softer sales of toys, media and gaming, and apparel during the month of December.

Overall, the earnings point to the challenges for Walmart in a market where more consumers than ever are choosing to shop online. Walmart, meanwhile, still makes the bulk of its money from retail stores, not online, though it’s heavily investing in the latter. That leaves it at mercy of the sort of problems it faced in Q4 — like the trouble with the toy industry (that also hit Target), a lack of newness in gaming, a shorter holiday shopping season, and even a warmer winter than has depressed apparel sales across retailers.

Even as large as Walmart’s stores are, they’re still constrained by shelf space and square footage. And when inventory doesn’t move as quickly as it should, sales suffer. In Q4, Walmart’s U.S. same-store sales were up 1.9%, which was short of the 2.3% expected.

By comparison, Amazon’s holiday results crushed expectations. It reported record sales, Prime membership that soared to 150 million paying subscribers, and one-day and same-day deliveries that quadrupled over the same quarter the prior year.

So far, Walmart, like Target and others, has been fairly successful in taking the hybrid approach to retail — meaning its brick-and-mortar business and online side aren’t separated, but rather work together to drive shoppers into stores to pick up their online purchases. Walmart’s pickup business, including online grocery pickup, is helping capture market share and grow Walmart’s overall e-commerce sales.

That remained true in Q4, as e-commerce sales were up 35% with online grocery helping drive those increases. Walmart even boasted grocery sales on a two-year stacked basis were its “best in the past 10 years.” The retailer has also been quickly expanding the number of stores that support online grocery, and ended the year with nearly 3,200 grocery pickup locations and 1,600 stores offering grocery delivery.

However, in a quarter that’s all about boosting business by way of holiday shopping, it’s worth noting that Walmart’s e-commerce sales were up by 41% last quarter, more than the 35% in Q4.

One area where Walmart may need to more quickly expand in the months ahead is its Delivery Unlimited service. Launched in 2019, the membership program for grocery delivery competes with Instacart and others by allowing grocery delivery customers to save on their per-delivery fees by way of a monthly or annual subscription. The company didn’t offer an update on where the program is now available, though it had planned for 50% coverage across the U.S. by year-end.

Meanwhile, Target has now expanded its Shipt same-day grocery delivery service to include non-grocery items from its stores, and has integrated Shipt directly with its own app and on Target.com. And of course, Amazon’s Prime members can shop grocery thanks to Whole Foods, as well as rush their everyday orders courtesy of Amazon’s ever-faster ship times.

In addition, Walmart’s still unprofitable e-commerce business faced other struggles in 2019. Some of its acquisitions in apparel haven’t paid off as anticipated. Last year Walmart sold off Modcloth, Bonobos laid off staff and founder Andy Dunn left. Walmart also shut down Jet.com’s city grocery business, and it just wrapped up its experimental shopping service Jet black.

Walmart additionally pointed to issues in Q4 related to political unrest in Chile, which disrupted the majority of its stores. However, Sam’s Club, Walmex, China and Flipkart did well.

“The holiday season delivered positive transaction growth and underlying expense leverage was strong for the
quarter. However, it wasn’t as good as expected due to lower sales volumes and some pressure related to
associate scheduling,” said Walmart CFO Brett Biggs, in a statement. “We understand the factors that affected our results and are developing plans to address them. We remain confident in our business strategy and our ability to deliver value and convenience for our customers through an integrated omnichannel offering across the globe,” he added.

The retailer also offered lowered 2021 guidance, with earnings expected in the range of $5.00 to $5.15, below analysts’ estimates of $5.22. Walmart said this doesn’t include any impact from the coronavirus outbreak, but it’s continuing to monitor the situation.

 

Los Angeles-based ‘deep tech’ investment firm Riot Ventures is raising a $75M fund

Riot Ventures, the Los Angeles-based, early-stage and deep technology investment firm is going out to market to raise a $75 million second fund to finance the development of startups in LA and beyond, according to fundraising documents viewed by TechCrunch.

The firm has largely flown under the radar, but it has been investing in startups applying innovations in automation, artificial intelligence, computer vision, computational biology, material sciences and robotics to industrial products and processes for the past two years.

Its first fund was a modest $10 million vehicle that the firm’s co-founders, Stephen Marcus and Will Coffield, raised to test the thesis their fledgling fund was exploring. Chiefly, they thought that robotics and machine learning were going to transform everything from aerospace to industrial manufacturing and retail, and they saw Los Angeles as a unique location from which to deploy capital.

Since the initial fund launched in 2017, the companies in Riot’s portfolio — including a number of later-stage special purpose investments made in companies like the point-of-sale tablet manufacturer Toast; the metal 3D printing equipment manufacturer Desktop Metal; and Shield AI, a stealthy drone company that works in the defense industry — are now worth roughly $16 billion.

In all, Riot has invested around $60 million through its direct investments and special purpose vehicles. But it’s not the capital that sets the firm apart, according to the pitch deck viewed by TechCrunch.

Marcus has a long background in angel investing and company creation. He’s a six-time serial entrepreneur whose sold telecom companies to acquirers like American Tower, Sprint and National Grid. Meanwhile, Coffield has spent the past several years building out a network in Los Angeles and eight years in the venture capital industry.

However, the firm places its emphasis on its newest partner, Jenna Bryant, a recruiter who spent the past years building out teams for some of the biggest names in the Los Angeles technology and entertainment industries, including Walt Disney Co., Oculus, Snap, Tinder and others.

“We actively recruit for our portfolio companies which enables us to meet a large swath of highly technical people,” the firm writes in its pitch deck. “We use this pool to win deals, make our companies more valuable, and find future hard tech founders. This is a core asset and function for our firm led by our Partner Jenna Bryant.”

Just as important as its recruitment practice is its position in Los Angeles, which is emerging as a hotbed for talent in robotics, rocketry, drones and defense. That’s borne out by investments in companies like Shield AI and Elementary Robotics — two companies in the Riot portfolio based in Southern California.

Walmart shuts down its experimental personal shopping service, Jet black

Walmart is shutting down its personal shopping service, Jet black, on February 21, after struggling to find adoption or additional investment. The service had allowed New York-area customers to text message orders for home delivery. According to its website, Jet black will now no longer accept new orders and will refund its customers their most recent $50 monthly membership fee.

The retailer tries to spin the shutdown as a learning experience, noting that part of the initiative was to test and build technology that could eventually be applied to other parts of Walmart’s business. In Jet black’s case, Walmart learned about conversational commerce and how customers could use text messages to shop.

But according to an earlier report from The Wall St. Journal, Walmart had discussed investment with several potential partners, including Microsoft and VC firm NEA. Those talks didn’t pan out. Jet black, the report said, had gained less than 1,000 customers and remained a money-losing business.

To be fair, a high-end shopping service was largely an experimental concept for Walmart to dabble in, and it’s not surprising that it didn’t take off. After all, the Walmart brand today is aligned with cost savings and mainstream America, not necessarily the well-to-do, time-strapped urban parents Jetblack aimed to cater to. It also overlapped with Walmart’s own home delivery options, including its successful Walmart Grocery service, which could deliver the fresh food Jet black could not.

Jet black received more attention than it likely warranted, given its concept and limited reach, for a few reasons. The service, which arrived in May 2018, was the first project to debut from Walmart’s tech incubator, Store No. 8, which drew interest. In addition, Jet black’s co-founder and CEO Jenny Fleiss, previously co-founded Rent the Runway, a popular clothing rental startup catering to a similar upwardly mobile demographic.

Jet black also arrived at a time when a few startups had been trying out text-based shopping, including Hello Alfred, Magic, GoButler, Operator, Fetch, Scratch, and others. (Most have since failed or pivoted.) Walmart’s entry into this market, at the time, was then considered notable.

Walmart claimed last July Jet black’s customers were spending $1,500 per month, on average. But there weren’t enough customers — or efficiency in the business model — to make Jet black profitable.

In addition, Fleiss left the business last year, signaling Jet black’s struggles. She replaced by Nate Faust, Walmart senior vice president of e-commerce logistics. The Journal reported Jet black was losing as much as $15,000 per year per member, as of last summer. Today, it says 293 Jet black employees will be laid off, as a result of the shutdown.

A Walmart spokesperson confirmed this figure to TechCrunch, as well, noting that 58 other employees are being retained to help apply Jet black’s learning to other areas, including Walmart Grocery.

“We’ve learned a lot through Jet black, including how customers respond to the ability of ordering by text as well as the type of items they purchase through texting,” said Scott Eckert, SVP, Next Generation Retail and Principal, Store No 8, in an announcement. “We’re eager to apply these learnings from Jet black and leverage its core capabilities within Walmart,” he added.