• by Sarah Mahoney  @mahoney_sarah, August 17, 2021

Americans are loving their local Walmart lately, with the retailer turning in unexpectedly solid sales and earnings. But while positive news is welcome, given other evidence of spending slowdowns amid COVID cases, it’s likely to be eclipsed by something more significant: Amazon has most likely dethroned Walmart to become the largest retailer outside China.

Walmart still has plenty to brag about.

Total revenue rose 2.4% to $141 billion, and operating income jumped 21.4% to $7.4 billion. Sales in the U.S. gained 5.3% to $98.2 billion, while U.S. operating income increased 20.4%. And driven by a comparable-store sales increase of 6.1%, it expanded its grocery market share.

In commenting on the results, Doug McMillon, president and CEO, focuses on the strength of its new advertising business, which doubled in the U.S.

“We added thousands of new sellers to our marketplace, rapidly grew advertising businesses around the world, and we’re finding innovative ways to commercialize our data and build technology,” he says in the announcement. “We have a unique ecosystem of products and services designed to serve customers in broader, deeper ways.”

Analysts seem confident that Walmart Connect, its ad business, will pay off, with the number of active advertisers up 170%. And they are even taking the Bentonville, Arkansas-based company’s subdued gains in ecommerce, up just 6% this quarter, in stride.

“We believe Walmart is still in the earlier stages of capitalizing on its ancillary online revenue potential,” writes Zain Akbari, an analyst who follows Walmart for Morningstar. “We suspect advertising, analytics and other revenue sources will help offset fulfillment costs as digital sales rise and expect Walmart to derive around 30% of its U.S. namesake stores’ sales from ecommerce by the end of the next 10 years (from mid-teens expected this fiscal year).”

For the full year, Walmart forecasts ecommerce sales of $75 billion.

Its increased forecast “confirms our view that Walmart will continue to run on all cylinders, leaning heavily on its stores as it remains one of the premier global retailers by any yardstick,” writes Charlie O’Shea, retail analyst for Moody’s.

Within hours of those results, The New York Times reports the long-expected dethroning of Walmart arrived. Citing data from FactSet, it says that in the past 12 months, people outside China spent some $610 billion on Amazon, compared to $566 billion in the same period at Walmart.

(Within China, Alibaba continues to dwarf both Amazon and Walmart.)

The U.S. Commerce Department reports that retail sales dropped 1.1% in July, as compared to June. The numbers spooked Wall Street, which had been predicting a much smaller decline. Many interpret the tumble as evidence that consumers are pulling back on spending as the Delta variant continues to gain ground.

Sales dropped in auto, easily explained away by supply-chain issues. But they also fell in apparel, furniture and sporting goods.]