Dive Brief:

• Walmart built on its growth throughout last year with comparable sales in the U.S. up 5.6% in the fourth quarter and up 6.4% for the full fiscal year. Total U.S. sales for the fiscal year were up 6.3% to $393.2 billion. 
• As shoppers adjust to new phases of the pandemic, the company experienced a slowdown in its digital growth for Q4, with U.S. e-commerce sales growth of just 1%.
• During the year Walmart also brought in billions from non-retail revenue streams. The company's advertising business reached $2.1 billion for the fiscal year, helping to offset the hit from supply costs to its bottom line. Walmart also posted roughly $5 billion in membership and other income for the year, up 27.4% from the previous year.

Dive Insight:

In a year of unprecedented supply chain turmoil, Walmart leaned on its massive scale to keep its shelves stocked for the all-important fourth quarter. 

As the holiday shopping season kicked off last year, the retailer, along with its largest competitors, sought to reassure customers that they would be able to handle freight bottlenecks and other disruptions. 

At the time, Joe Metzger, executive vice president of supply chain operations at Walmart U.S., pointed out that the retailer was chartering ships, rerouting ocean and inland shipments, boosting wages, hiring new truck drivers and supply chain staff, and adding storage capacity — all to ensure its shelves were well-stocked. 

In its earnings announcement, Walmart said that it prioritized its in-stock levels, with inventory up 28% in the U.S. during Q4. That was partly from the inflated costs of those goods during a year of disruption, as well as higher levels of in-transit shipments from restock activity and elevated sales. 

Sales came at a cost, though. In an investor presentation, the company said that supply chain costs in Q4 were more than $400 million over expectations. That's more than what many retailers made in revenue for the quarter. 

But Walmart can absorb those costs in large part out of its sheer size and financial firepower. It also now has billions of dollars coming in that are unaffected by supply chains. Of note is its $2 billion-plus advertising business, which underwent an overhaul last year. 

"The business model is changing," CEO Doug McMillon told analysts Thursday on a conference call. "I think that's the headline. We've got a business that's becoming increasingly digital. The e-commerce business, first-party, third-party is growing. It gives us the opportunity to grow advertising income. It's growing at a fast rate, and it's growing across markets."

While that income isn't related to retail per se, McMillon tied it back to the retail side of the company. "The margins are helpful," McMillon said. The chief added that those margins "help us keep prices low for customers" and meet operating income metrics.  

As for the decline in the retailer's digital business — the growth of which has been a management priority for years — it came on top of nearly 70% growth in Q4 of last year. Despite the tough comparison, the deceleration "nevertheless represents a marked deterioration in the growth trajectory Walmart has been on," Neil Saunders, managing director with GlobalData, said in emailed comments.

"In our view, this serves as further evidence that the 'digital will kill stores' narrative has been completely overblown and justifies Walmart's omnichannel approach to investment," Saunders added.

Walmart management expects more growth ahead. Guidance for the 2023 year estimates comparable sales growth above 3% in the U.S.