Walmart nails comp sales, raises guidance heading into holiday season

Walmart Inc. reported solid third-quarter earnings on Thursday (Nov. 15) thanks in part to a healthy U.S. economy and the highest consumer sentiment levels in 20 years. For the quarter ending Oct. 31, Walmart reported net income of $1.71 billion or $1.08 per share.

However, income was adjusted with a 48-cent unrealized loss from a recent equity investment in JD.com, a 3-cent charge related to the sale of the Brazilian business and a 1-cent benefit from tax reform.

Earnings were slightly better than Wall Street consensus on a non-GAAP basis. Analysts had forecast earnings of $1.01. Walmart’s net earnings of 58 cents a share were flat against a year ago. While net income hit the mark, revenue fell short of the consensus. Revenue topped $124.9 billion in the quarter, missing the consensus of $125.4 billion. On a constant currency basis, Walmart grew revenue to $126.1 billion, up 2.4% year-over-year.

For the first nine months of the fiscal year, Walmart reported revenue of $375.612 billion, up 3.2% from the same period in the prior year. Operating income declined 0.5% to $15.89 billion for the full nine months of this year. Consolidated net income for the nine months was $2.983 billion, down from $7.687 billion a year ago. The decline relates to divestitures and additional equity investments in markets like India and China. Walmart continues to maintain a free cash flow of $10.294 billion as of Oct. 31, on par with the $10.152 billion reported a year ago.

“We have momentum in the business as we execute our plan and benefit from a favorable economic environment in the U.S. We’re accelerating innovation and utilizing technology to shape the future of retail. We’re making shopping at Walmart faster and easier,”  Walmart CEO Doug McMillon noted in his prepared remarks. “We’re pleased with the overall results we posted for the third quarter. We continue to see strong comp store sales. Our results reflect not only value our customers are finding in our offer and a lot of hard work from the team, but certainly some macro tailwinds as well, especially in the U.S.”

Higher U.S. comp sales were a highlight in the quarter rising 3.4% and 6.1% on a two-year stack. Comp sales a year ago rose 2.7%. Walmart is seeing solid store traffic with comp sales of 1.2% growth and ticket comps rising 2.2%. Walmart’s e-commerce added 1.4% to the U.S. comp sales in the quarter from expanding online grocery.

The U.S. segment had net sales revenue of $80.6 billion, up 3.7% year-over-year. Walmart U.S. CEO Greg Foran said during the media call the business is gaining momentum as the holiday season approaches. He said inventory is a good position and toys will be a big focus this holiday. He said 30% of the fall assortment is new this year and there are 40% more toys available online.

“We’re encouraged by the sales and market share gains we saw in key categories, according to Nielsen and The NPD Group. We feel good about our inventory and price position as we head into the holiday period,” Foran said.

Walmart said fresh food led the way with strong traffic. Health and wellness delivered a mid-single-digit comp sales gain and general merchandise comp sales were up a low-single-digit percentage with continued strength in apparel and toys.

Walmart reported e-commerce growth of 43% in the quarter ahead of its 40% guidance for the year. The retailer declined to say how much of that growth is related to online grocery pick up.

Walmart U.S. eCommerce CEO Marc Lore said during the media call the online segment continues to make progress in nailing the fundamentals, such as having the items people want, converting browsers to buyers and delivering on user experience. He said the growth in sales reflects the progress the company is making, especially in assortment and delivery metrics which resulted in a 10% spike in its Net Promoter Scores year-over-year.

“We’ve added over 2,000 brands to Walmart.com just since April, and in the past few weeks, we added Nike and Bonobos merchandise to Jet.com along with Blue Apron meal kits. We’ve also improved delivery accuracy, and we announced that we’re adding free two-day shipping of millions of marketplace items and expanding the capabilities for customers to return eCommerce items to their local Walmart store,” Lore said.

Sam’s Club also had a glowing quarter with net revenue $14.5 billion, down slightly from $14.9 billion a year ago. The lower revenue related to the closure of 63 under-performing clubs earlier this year. Comp sales excluding fuel rose 3.2% in the quarter compared to 2.8% a year ago. Traffic comps were up 6.2%, while ticket comps fell 3% in the quarter. E-commerce added 1.30% to the overall sales comp at Sam’s Club in the quarter. Sam’s e-commerce sales rose 32% in the quarter.

Walmart International reported revenue of $28.8 billion, down 2.6% from year ago. The lower revenue related to the sale of assets and currency fluctuations. On a constant currency basis revenue was $30 billion, up 1.6% from a year ago.

Comp sales in this segment were positive in 9 of the 10 markets. Walmart said it completed the acquisition of Flipkart in the quarter and the divestiture of Brazilian assets also resulted in a $1.3 billion loss of sales in the quarter. Walmex delivered strong comps up 5.4% with total sales growth of 7.2% in the period. Canada increased sales by 2.8% with comp sales of 2.5%. China reported growing sales by 4.3% with comp sales rising by 2.2%. Asda in the United Kingdom reported sales growth of 3.7% and comp sales up 2%. Walmart said its merger with Sainsbury is moving along as expected.

With so much going right at Walmart, investors have jumped into the stock heavily in recent weeks, largely as a safety play. This increased interest in the stock pushed share prices up sharply since early October. Walmart gave investors a positive message on Thursday when it raised its earnings guidance to a range of $4.75 to $4.85 per share for the fiscal year ending Jan. 31, 2019.

That said, investors were fickle on Thursday as Walmart shares (NYSE: WMT) sold off dipping below the $100 mark since Oct. 29. Shares were trading at $98.80 in the morning session, down 2.69% in heavy volume. Analysts overall remain bullish on Walmart with 15 of 32 analysts rating the stock a “buy.” For the past 52 weeks, Walmart shares have traded between a high $109.98 and a low $81.78.

Ben Bienvenue, an analyst with Stephens Inc., said Thursday Walmart beat his earnings estimate amid a stronger gross margin and lower interest expense.

“We continue to be impressed by the momentum in this business and reiterate our overweight rating. The price target of $115 is under review.”