Why 2017 was a memorable year for Wal-Mart Stores Inc.

Investors in Wal-Mart Stores (NYSE:WMT) must have wondered what was happening to the world. In 2015, while the broader market ended the year just shy of reaching equilibrium, the retailer’s shares fell a pitiful 29%. For the fiscal year ending Jan. 31, 2016, revenue fell 0.7% year over year, while net income fell 10% and same-store sales rose a pitiful 0.6%. It was the first time the company failed to increase sales since going public in 1970.

Results for another year were only slightly better, with revenue up 0.8% year over year, while net income fell 7% and comparable same-store sales rose 1.8%. Competition from e-commerce giant Amazon.com (NASDAQ: AMZN) weighed on the retailer, and predictions of the demise of the American retailer abounded.

A Wal-Mart employee helps a customer pick up an order in the store.

Wal-Mart stock was on fire in 2017 after an impressive earnings report. Image source: Wal-Mart.

Last year, however, was a different story. The company’s investments in online sales, as well as a variety of shipping and in-store pickup initiatives, began to bear fruit and drew investors back from the sidelines. 2017 will be remembered as the year Wal-Mart put Amazon on notice that it had its own e-commerce and omni-channel solutions — and that it was a force to be reckoned with.

A year of transformation and rebirth

The seeds of Wal-Mart’s remarkable turnaround were effectively planted in August 2015 with the purchase of online retailer Jet.com for $3.3 billion. It was the first of several such acquisitions the company made to help Wal-Mart compete in the rapidly growing e-commerce space. Other purchases included outdoor retailer Moosejaw, men’s clothing company Bonobos and women’s apparel maker Modcloth.

The most significant acquisition was that of Jet.com founder Marc Lore, whom Wal-Mart named head of e-commerce. Lore brought a startup mentality to the company’s efforts to revamp its online strategy.

Several initiatives underscore Wal-Mart’s ongoing transformation into an omnichannel powerhouse. Wal-Mart and subsidiary Jet.com have begun offering free two-day shipping on orders of $35 or more—emphasizing that “everything is available to you without having to join a membership club or pay extra for the privilege,” in a not-so-thinly veiled take on Amazon.com. The company also acquired the Parcel delivery service, which provided same-day shipping for meal kits and online retailers in New York City. Parcel’s automated delivery platform will give Wal-Mart the technological foundation to expand its own shipping operations.

Wal-Mart has piloted test projects that encourage employees to deliver packages to customers on their way home, and has also introduced giant vending machines that let customers place online orders and pick up their purchases in the store for a discount.

Jet.com also launched a new, exciting and cutting-edge private label called Uniquly J, which targets millennials with colorful packaging, unconventional copy and bold designs to appeal to younger customers in a way that the company’s traditional private label brands – Equate, Sam’s Choice and Great Value – never did.

The proof is in the pudding

In the third quarter of fiscal 2018 (ended October 31, 2017), the company reported revenue growth of 4.2% year over year and comparable same-store sales that increased 2.7%. Excluding one-time items related to the hurricane and debt write-off, earnings exceeded those of the prior-year quarter. More significantly, the company’s e-commerce sales increased 50% compared to the prior-year quarter.

The company has been increasingly focused on its online and omnichannel capabilities. In late 2017, Wal-Mart Stores announced it would drop both the hyphen and “Stores” from its name, in a nod to the company’s ongoing shift to e-commerce.

WMT data by YCharts.

Wall Street is starting to take notice

Analysts at Citi Research issued a rare and commendable mea culpa on the previous Wal-Mart call. In a note to clients, Kate McShane wrote (emphasis mine):

We sat on the sidelines with this name in ’17, which turned out to be a big mistake. Despite the stock’s gains, we believe there’s more to come… We believe an aggressive omnichannel strategy will continue to drive significant sales growth, and Wal-Mart’s e-commerce operations are becoming a real challenge to Amazon, both of which could drive further multiple expansion.

The most noticeable change for investors was the stock’s performance. After two disappointing years, Wal-Mart shares rose an impressive 43% in 2017, more than twice the 19% gain in the broader market.

Expect the company to continue its winning streak as Wal-Mart continues to implement new initiatives and delve deeper into e-commerce. 2017 was a year Wal-Mart won’t forget.

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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Danny Vena owns stock in Amazon. The Motley Fool owns stock in and recommends Amazon. The Motley Fool has a disclosure policy.