Quarterly income down 1.3% for Wal-Mart, but per share earnings beat estimates

Wal-Mart Stores performed better than equity analysts expected in the recent quarter ending April 28, even with net income down by 1.3% to $3.039 billion. The $1 net income per share beat the consensus estimate of 96 cents per share.

Revenue was slightly less than analysts expected as Wal-Mart reported top line sales of $117.5 billion compared to the consensus of $117.7 billion. That said, revenue grew 1.4% from the $115.904 billion in the year-ago quarter. Some deflationary pricing and foreign currency exchange rates drove down revenue by roughly $1.3 billion in the quarter.

“We delivered a solid first quarter and we’re encouraged by the start to the year. We’re moving faster to combine our digital and physical assets to make shopping simple and easy for customers. Our plan is gaining traction, and I want to thank our associates for their hard work, ingenuity and commitment to our customers. Our customers have choices, and we have to earn their business with every interaction,” Doug McMillon, CEO of Wal-Mart Stores, noted in the earnings report issued Thursday (May 18).

There were more things going right for Wal-Mart in the quarter with comparable store sales growth of 1.4% in U.S. stores and a 1.5% jump in same-store traffic. Much of the retail sector has in recent months reported weaker store traffic. This marks the 10th consecutive quarter of positive comp traffic for the retail giant. On a two-year stacked basis, comp traffic is up 3%. Comp sales have been up for the past 11 quarters behind improved U.S. store results.

“Wal-Mart is generating traffic in brick and mortar and growing e-commerce and you just don’t see that anywhere in retail today,” said Karen Short, an analyst with Barclays. “E-commerce is working for Wal-Mart and it’s not coming at the expense of its store traffic.”

Short said the discipline Walmart U.S. is displaying is working and she was not disappointed by the first quarter results.

“Wal-Mart is my top pick,” she added.

Wall Street overall applauded Wal-Mart’s good quarter with shares (NYSE: WMT) rallying in the morning session. Shares rose more than 2% trading around $75.76 in heavy volume. For the past 52 weeks the stock price has ranged between $65.28 and $77.50.

While there was plenty for McMillon and his executive team to smile about, he said in the pre-recorded call the company is moving faster to combine its digital and physical assets to make shopping easier and more enjoyable for customers, but there’s still plenty of room for improvement.

“We need to scale our e-commerce business further and see some additional strength in our store comps to deliver the results we know we’re capable of, so that’s what we’re focused on,” he added.

Wal-Mart expects second quarter earnings between $1 and $1.08 per share.

WALMART U.S.
Walmart U.S. reported net sales revenue of $75.436 billion, up 2.9% over the $73.295 billion reported in the same period last year. Comp sales up 1.4% and traffic up 1.5% were helped by a 0.80% bump from the company’s e-commerce division where items are ordered online and picked-up in stores.

Walmart U.S. e-commerce grew its gross market value by 69% in the quarter, much of which is organic growth and also includes Jet.com. Walmart U.S. e-commerce CEO Marc Lore said Thursday the two-day free shipping service on more than 1 million online items is having a positive impact on online sales. Likewise, the new pickup discounts when shoppers pick up their online order in stores is also good for store traffic.

Analysts also suspect much of the e-commerce growth is related to the retailer’s expanded marketplace offerings. When asked to quantify the growth, Wal-Mart CFO Brett Biggs told the media that e-commerce is still a small piece of the overall business and that’s why it doesn’t yet break out specifics.

Walmart U.S. said the average ticket declined slightly because of lower sales of higher ticket items at the beginning of the quarter related to the delay in tax refunds. But, the grocery business improved delivering the strongest comp sales performance in more than three years. Wal-Mart did not break out the comps for Neighborhood Market formats in the quarter.

The U.S. segment also benefited from a 7.3% decline in comp store inventories in the quarter. The segment’s gross margin rate was flat in the quarter as the company continues to invest heavily in its e-commerce business. Walmart U.S. expects comp sales growth between 1.5% and 2% in the quarter ending July 28.

SAM’S CLUB
Sam’s Club, now under the leadership of CEO John Furner, reported net sales of $13.993 billion, up 2.8% from a year ago. Comparable sales, excluding fuel, rose 1.6% and traffic was up 1%, reversing a negative trend a year ago. Sam’s reported a slight increase in tickets up 0.5%. Like Walmart U.S., Sam’s saw a 0.80% bump in comp sales related to its growing e-commerce business which is 21% higher year-over-year. Membership also grew from a year ago, though the company didn’t break out the total.

Sam’s Club did say its Club Pickup increased nearly 30% from a year ago. Sam’s Club expects comp sales to grow between 1-1.5% in the quarter ending July 28.

WALMART INTERNATIONAL
The international division had net sales of $27.097 billion, down 3.5% from a year ago. Biggs said international reporting lags the rest of the company by about one month and the late Easter this year was not included in the first quarter results. On a constant currency basis net sales totaled $28.296 billion, up 0.8% to a year ago.

Biggs also said there was $385 million in sales the company didn’t have compared to a year ago relating to the sale of Yihaodian to J.D.com in the fourth quarter of last year. Also the sale of the Suburbia apparel format will be completed in the second quarter of this year with an expected 5-cent earnings per share benefit in the quarter. Likewise, international sales are expected to compromised by about $600 million this year without Suburbia.

Following are results in key foreign markets.
• Walmex total sales grew 5.2% and comp sales rose 3.7% in the quarter.
• China net sales increased 0.7% and comp sales fell 1.3%.
• United Kingdom net sales improved 0.9% while comps were down 2.8%.
• Canada net sales grew 2.7%, and comp sales rose 1.5%.