Dive Brief:

• Walmart on Tuesday reported total revenue of $136.3 billion for the fourth quarter, a 4.1% increase over the year-ago period. (Excluding currency, the increase was lower, at 3.1%.) Comparable sales in the U.S. were up 2.6% in Q4, and Walmart said that on a two-year stack, comps were the best in eight years with a 4.4% increase. E-commerce sales increased 23% in the quarter, a marked slowdown from 50% in Q3 and 60% in Q2.
• As sales grew, operating income fell 28% from the year-ago quarter, to $4.5 billion in Q4. Adjusted earnings for Q4 were $1.33 a share, missing the $1.37 per-share FactSet projection cited by MarketWatch. However, the mass merchant's revenue ($136.3 billion) beat the FactSet consensus estimate of $134.91 billion. Nonetheless, Walmart stock dropped 7.02% in premarket trading Tuesday on worries about profit and e-commerce slowdowns.
• For the full fiscal year, Walmart brought in $500.3 billion, a 3% year-over-year increase, and e-commerce sales grew 44%. Operating income for the year was $20.4 billion, a 10.2% decrease. The company also said it has recorded a provisional $207 million benefit for the year from 2017's tax bill. For the upcoming fiscal year, the company projects comp growth of 2%, e-commerce growth of 40% and earnings per share of up to $5.

Dive Insight:

It's worth pausing to at least try to comprehend the mind boggling size of Walmart — which for years has sat at the top of the Fortune 500. Last year, the retail behemoth brought in half a trillion dollars. That's more money than the GDP of Belgium (and a lot of other countries, too).

Many analysts and investors were hard on the company for its weak profit numbers and the slowdown in e-commerce growth. But by many measures, the retailer posted a respectable performance in Q4, and it's clear the company is ambitious about growing on the online side.

Moody's Lead Retail Analyst Charlie O'Shea described Walmart's online performance as "impressive" in comments emailed to Retail Dive. However that performance came at a cost, even if those costs were calculated and strategic. O'Shea noted that "there was some sacrifice in gross margin in the quarter, which we attribute to holiday promotional activity in the U.S., as well as the impact of the ongoing price-driven market share battle with Amazon."

Other analysts also shrugged off (more or less) the profit hit. As GlobalData Retail Managing Director Neil Saunders said in a note emailed to Retail Dive, "[W]e are not overly concerned by this, both because Walmart remains comfortably profitable and because much of the deterioration is down to the various investments Walmart is making in future-proofing its business."

It's also worth noting that traffic increased at Walmart stores by 1.6% in Q4 (a figure just about any mall retailer would kill to report). "We believe this is down to Walmart's focus on low prices plus better customer service, improved ranges and better-selling environments," Saunders said. "The bottom line is that even in an era of stiff competition, Walmart is becoming more and not less relevant to the American consumer."

For the year ahead, the retailer expects a similar ballooning of online sales as last year, as the company, in O'Shea's words, "keeps the online pedal to the metal in 2018." But Walmart has more than one online pedal it could hit, as the company builds out both its Walmart.com and Jet.com businesses. Executives demurred when asked by analysts Tuesday where Walmart might invest in its various e-commerce platforms going forward.

CEO Doug McMillon said on a conference call the company was "trying to preserve flexibility" as it watches the performance of both brand channels. It points to the underlying incongruity in the Walmart and Jet brands — which, for the most part, operate separately.

The difference between the e-commerce brands is something the company is betting will be a competitive advantage as it reaches across markets. McMillon said on the call that Walmart is still a "really well-known brand for value" in middle American places like Oklahoma, while Jet plays well with urban millennial and higher income customers in places like the New York City metro area.

As Saunders notes, Walmart needed and still needs to do something to reach the latter group of customers, as "they do not associate Walmart with online, or they default to Amazon." He added, "This is a tough nut for Walmart to crack, and one that it can only break by more heavily marketing its services and proposition."

And while investors might "bemoan" the profit declines, Walmart "needs to invest in evolving and adapting," Saunders said. "If it doesn't, it will become irrelevant."