Walmart’s 19% earnings growth pushes stock price higher

Walmart came through with “smashing” financial results early Thursday (Aug. 16). The giant reported its best sales growth in a decade for the second quarter ending July 31. Walmart U.S. reported same-store sales up 4.5%, helped with e-commerce sales growth of 40% in the quarter.

By all respects the financials were solid, according to Ben Bienvenue, an analyst with Little Rock-based Stephens Inc., who said “these impressive results underscore our confidence in management’s strategy.”

Walmart’s strong top line resulted in total growth of 3.6% on a constant currency basis. Revenue increased $4.4 billion in the quarter to $127.8 billion. Adjusted earnings per share were $1.29, coming in ahead of the $1.22 Wall Street consensus, sending the share price up more than 10% in premarket trading. Earnings were impacted by the following one-time charges: for $1.51 per share from the sale of Walmart Brazil, 4 cents on tax reform and 3 cents on unrealized equity investments in JD.com.

Also impressing Wall Street was the retailer’s full-year guidance range, which it raised from $4.90 per share to $5.05 versus $4.78 consensus. The guidance excluded any impact from the pending acquisition of Flipkart. The company expects net sales growth of 2% versus 1.5% prior for the full year, taking into account the sale of the Brazilian business. U.S. same-store sales growth are expected to be 3% for the full-year, up from the former 2% target.

“We are pleased with how customers are responding to the way we’re leveraging stores and e-commerce to make shopping faster and more convenient … Customers have choices and we’re making it easier than ever for them to choose Walmart,” President and CEO Doug McMillon said.

Walmart U.S. continues to shine, reporting net sales of $82.8 billion in the quarter, up 5.2% from the year-ago period. Traffic comps rose 2.2%, up from 1.3%, and ticket comps were up 2.3% from 0.5% a year ago. Online commerce added roughly 1% to the overall U.S. sales comp of 4.5% in the quarter.

Walmart U.S. CEO Greg Foran told the media Thursday the “Walmart wheel is starting to turn.” He explained the strong results were a combination of many things, from better consumer sentiment, healthier economy and warmer weather, which fueled more sales of patio furniture and general merchandise such as apparel.

Foran was quick to add the company’s grocery business also fared well. Fresh food sales led to the company’s best grocery comps in nine years. He said consumers continue to like and use online grocery pickup, which was available in more than 1,800 locations at the end of the quarter.

Foran said the retailer has a favorable inventory position for the holiday shopping season. Over the past two years, Walmart U.S. inventory has declined 4.5% while in-stocks are higher. Over the past three years, inventory is down 11%. Companywide in the recent quarter, Walmart reported inventory valued at $41.985 billion, down 3.4% from a year ago.

While inventory is down, Walmart U.S. e-commerce continues to expand its product offerings. Walmart U.S. e-commerce CEO Marc Lore said Thursday the business unit added more than 1,100 new products this year and it is still working to get margin levels up. He said it’s taking longer than expected to get higher margin brands added, and the losses in the segment will be more than last year. He said losses will be higher as it continues to invest in initiatives and technology tools deemed necessary in the short term to ensure the retailer wins long term. Sam’s Club reported e-commerce growth of 31% in the quarter.

Sam’s Club also produced better-than-expected results with comp sales up 5%, excluding fuel. That segment reported sales of $13.293 billion, without fuel, down 3.1%, in part because of the clubs which closed earlier in the year. The closures, however, did have a positive impact on club comp-traffic, which rose 6.7% as members migrated to other clubs. Ticket comps were down 1.7% in the quarter, but membership income was up 1.2% in the quarter.

“Our U.S. Sam’s Club business continues to strengthen,” McMillon said. “We had our best comp sales performance in six years. The changes [Sam’s Club President and CEO] John [Furner] and the team have made over the past year and a half have reinvigorated the team and our members … We’re seeing good traffic, both in clubs and online, and we’re also seeing stronger membership trends and we are excited about the overall health of the business.”

Walmart continues to tweak its international portfolio with the pending sale of ASDA to Sainsbury in the United Kingdom and the acquisition of Flipkart, which was approved by the Competition Commission in India earlier this month. Walmart expects the deal will close by the end of the year. Walmart also closed the sale of 80% of its business in Brazil, which resulted in the $1.51 charge to second-quarter earnings.

Walmart International had sales revenue of $29.2 billion on a constant-currency basis, up 3.1% year-over-year. Walmart gave more details on its four major markets during the quarter, with Walmex growing sales 7.3% and same-store sales rising 5.4%, most of that was attributed to a 4.9% growth in comp-ticket. ASDA, in the United Kingdom, grew sales by 2.4% with comps of 0.4%. Canada reported comp sales of 2.5% with overall sales growing 2.8%. In China, sales grew 4.3% while comp sales rose 1.5%, most which was attributed to a 1.3% uptick in ticket sales.

Walmart also said it expects to spend $15 million this year on third-party FCPA and compliance-related expenses. In the recent quarter, Walmart spent $5 million on ongoing inquiring and investigations for violation of the Federal Corruption Practices Act underway for the past six years. Another $3 million was spent on the company’s internal global compliance efforts. Next year, Walmart said it expects to spend a total of $28 million on those matters.

Shares of Walmart Inc. (NYSE: WMT) were trading higher Thursday on active volume amid the solid report. Shares were selling at $99.26, up $9.04 in the morning session. For the past 52 weeks, the share price has ranged from $77.50 to $109.98.