Walmart full-year revenue up 2.9%, net income falls more than 30%

Gains in holiday sales helped boost Walmart revenue in the 2019 fiscal fourth quarter, and for the fiscal year ending Jan. 31. Quarterly revenue for the Bentonville-based retail giant rose by 2% to $138.793 billion, and by 2.8% for the year at $514.405 billion.

Walmart generated revenue of $1.413 billion per day during the past year, better than the $1.374 billion daily revenue reported a year ago. This is the second year Walmart posted more than a half trillion dollars in revenue. Walmart said sales growth led to 35.8% growth in operating income in the fourth quarter, and up 7.4% for the fiscal year.

After adjustments, Walmart had a fourth-quarter profit of $3.69 billion and full-year net income of $6.67 billion.

Net earnings per share exceeded Wall Street expectations in the quarter at an adjusted rate of $1.41 per share, before a 17-cent charge related to federal tax law changes and an unrealized gain of 3 cents from the company’s stake in JD.Com in China. On a GAAP basis, earnings per share were $1.27, up 74% compared to the fourth quarter a year ago.

Wall Street consensus for the fourth quarter was $1.33, roughly 6% below the adjusted earnings per share reported. Walmart also beat estimates on same-store sales, posting U.S. gains of 4.2%, much better than the 2.9% uptick forecast by analysts. Walmart also over delivered on e-commerce sales growth which jumped 43% in the fourth quarter as the company continued to expand its online grocery pickup and delivery services.

Fiscal 2019 earnings per share were $4.91 on an adjusted basis, before a $1.54 charge on the sale of Walmart Brazil, an unrealized loss of 95 cents from the stake in JD.com and a 16-cent charge relating to federal tax law change. On a GAAP basis, earnings per share for the year totaled $2.26, down 31% from a year ago.

“We had a good year. … Progress on initiatives to accelerate growth, along with a favorable economic environment, helped us deliver strong comp sales and gain market share. We’re excited about the work we’re doing to reach customers in a more digitally-connected way. Our commitment to the customer is clear – we’ll be there when, where and how they want to shop and deliver new, convenient experiences that are uniquely Walmart,” said Walmart President and CEO Doug McMillon.

Investors applauded Walmart’s financial report with shares up more than 3% in heavy trading at the market open on Tuesday (Feb. 19). Shares of Walmart (NYSE: WMT) were trading at $103.49, up $3.50. Walmart shares led the Dow Jones advances early on Tuesday.

McMillon and Chief Financial Officer Brett Biggs held a live earnings call with analysts early Tuesday. The overall tone among analysts participating was positive and upbeat as they congratulated Walmart on what was a solid year overall despite the net income decline.

McMillon told analysts there will continue to be challenges outside the retailer’s control such as trade concerns, currency fluctuations and regulatory hurdles in India related to the company’s majority stake in Flipkart. He said the company will continue to use technology and leverage its size and scale around the globe to find efficiencies that keep the productivity loop turning in the right direction.

One area McMillon called out as disappointing is the eCommerce division which is taking longer to turn a profit despite billions in investments in recent years. For the quarter, Walmart eCommerce did produce strong sales up 43% from a year ago. While sales are up, the segment does expect wider losses this coming year. McMillon said it’s taking longer to get the assortment and customer experience right that will keep shoppers coming back and generate larger basket purchases. Walmart has upward of 75 million items sold online. Amazon reportedly offers 480 million items on its e-commerce site. McMillon did say Jet.com is helping the retailer gain access to more brands than ever before.

“We continue to build that assortment and a reputable, healthy business online that mirrors our stores. We are peddling fast to make that happen and we are disappointed it’s taking as long as it has,” McMillon said during the call.

U.S. RESULTS
With more 5,300 stores across the U.S., Walmart reported fourth-quarter sales revenue of $90.5 billion, up 4.6% year-over-year. These stellar results included comp sales growth of 4.2%, up from 2.6% reported a year ago. Traffic was up fractionally and the average ticket rose 3.3%. Walmart eCommerce added 1.8% to the total comp number for the quarter. Walmart U.S. had an operating income of $5 billion, up 7.2% from a year ago.

This marks the 17th consecutive quarter of positive U.S.same-store traffic growth. Toys, home, seasonal and electronics were strong in the quarter. Grocery again had the best two-year stacked comp in nearly nine years, according to Biggs.

McMillon said Greg Foran, CEO of Walmart U.S., continues to do a great job managing inventory, reducing it where it’s needed and also ensuring in-stock levels within stores are continuously improving. He said as a long-term merchant himself he’s excited to see the expanded assortment within stores and the decrease in items where it’s needed.

He said as online grocery grows with 2,100 locations and 1,000 more to be added this year, Walmart could continue to see some of the traffic counts in stores fall, but expects to see the overall ticket transaction rise to prevent an overall deficit. McMillon said using Supercenters as fulfillment centers raises the bar for store performance to ensure brick and mortar shoppers don’t find empty shelves or have to shuffle around personal shoppers picking orders for online grocery. He said Walmart learned to do this years ago with Asda in the United Kingdom and those practices are now carried out in U.S. stores.

For the full year, Walmart U.S. had total revenue of $331.7 billion, up 4% from the prior year. Comp sales were 3.6% higher than in the prior year. Some of the highlights for Walmart U.S. in the past year include higher wages for store hourly workers, more technology and robotics within stores, training for more than 450,000 employees in the nearly 200 training academies, and the remodel of 500 stores.

WALMART INTERNATIONAL
Net sales for international declined to $32.3 billion in the quarter, down 2.3%. On a constant currency basis sales would have $34 billion, up 2.7% from a year ago. Operating income for the quarter was $1.2 billion, down 9.9%. Operating income was negatively impacted by $1.3 billion in currency fluctuations.

McMillon said Walmart was disappointed with regulatory changes by the Indian government in recent months. He said the FlipKart investment is not a story for a quarter or even a year, but a long term play. He said Walmart will continue to work with regulators in India to ensure all compliance protocol is met and he hopes there can be a real collaboration between the retailer and regulators in the coming months.

“The Flipkart results were in line with our exceptions for the quarter and back half of the year,” McMillon said. “Flipkart is an ecosystem with lots of dimensions. There is a lot of variables to play with as we try and manage total return.”

He said growth in Mexico and Canada was positive. There a slightly negative comp-sales number in China, but that was explained as a shift in the holiday calendar. While it hurt the fourth quarter, it could help in the first quarter.

For the full year, Walmart International had total revenue of $120.8 billion, up 2.3% year-over-year. On a constant-currency basis sales were $121.5 billion, up 2.9%. Operating income for the segment was $4.9 billion, down 6.6% year-over-year.

SAM’S CLUB
Sam’s Club reported net sales of $14.9 billion in the fourth quarter, down 3.7%, primarily from the 10% fewer clubs after closures in January 2019. While Sam’s has fewer clubs, McMillon said membership stayed relatively flat compared to a year ago.

Comp sales excluding fuel were up 3.3% in the fourth quarter, compared to a 2.4% jump a year ago. Traffic in clubs was strong with a 6.4% jump, compared to 4.3% reported a year ago. Comp ticket sales were down 3.1%, wider than the 1.9% dip a year ago. Most of this can be attributed to tobacco sales which clubs no longer offer. Online sales provided a 0.9% boost to the comp-sales number in the fourth quarter.

For the year, Sam’s Club had total revenue of $57.8 billion, down 2.3%. Excluding fuel, comp sales were up 3.8%, compared to 2% in the year-ago period. Some of the highlights for Sam’s Club in fiscal 2019 include:
• Launched free shipping for Plus members from Samsclub.com;
• Announced partnership with Instacart for last-mile delivery at Sam’s Club;
• Launched Fresh Certification Program at Sam’s Club;
• Opened new Sam’s Club Now, a live club and innovation lab; and
• Converted four Sam’s Clubs to eCommerce fulfillment centers.

GUARDED GUIDANCE
Walmart projects earnings per share in the fiscal year that began Feb. 1 will decline by low single-digit percentages, primarily related to the Flipkart acquisition. Excluding Flipkart, the company said earnings per share should increase by low to mid-single-digit percentages over fiscal 2019.

The company expects sales growth of 3% when factoring in the negative impact of exiting Brazil, lost tobacco sales at Sam’s Club and some positive impact related to Flipkart. Walmart U.S. expects sales growth of 2.5% this year, up 3% when excluding fuel. Sam’s Club expects 1%, sales growth without fuel and up 3% when factoring out lost tobacco sales and field. Walmart’s international segment expects net sales growth of 5% on a constant currency basis. Walmart U.S. eCommerce expects sales to rise 35% this year.

Walmart has said capital expenditures will be about $11 billion with a focus on store remodels, customer initiatives, eCommerce, technology and supply chain. Walmart will open fewer than 10 new stores in the U.S. with roughly 300 stores expected to open in Mexico/Central/South America as well as China.

Ben Bienvenue, an analyst with Stephens Inc., forecasts earnings guidance for this year at $4.74, compared to $4.72 consensus guidance by Wall Street analysts. He expects U.S. comp sales to rise 2.5%, with Sam’ Club seeing a 1.0% uptick. Consensus predictions are for U.S. comps of 2.7% and Sam’s Club comps of 1.9%.

“Gross margin was better than we were expecting, We think this is what the buy-side was looking for. Walmart closed out the year strong and we think the stock continues to set up for out performances in calendar 2019. We are reiterating our overweight rating,” Bienvenue noted Tuesday.