Third quarter net income up 56% for Walmart, revenue beats estimates

Walmart sales have grown as an essential retailer during the COVID-19 pandemic. The retail giant posted better than expected financial third-quarter results with revenue of $134.7 billion, including $1.1 billion of currency fluctuations. Walmart grew revenue by 5.2% from a year ago and outpaced analysts’ expectations of $132.23 billion.

Earnings consensus was $1.18 per share and Walmart exceeded that at $1.80 per share on a diluted basis before a 34-cent loss from the sale of the Argentine business and an 80-cent charge from unrealized losses on equity investments. Walmart’s adjusted earnings of $1.34 per share were still better than the $1.16 reported a year ago.

Net income rose to $5.135 billion, up 56.1% from $3.288 billion a year ago as Walmart said strong cash flow around the business and higher gross profit margins helped offset $600 million spent in COVID-19 related expenses in the quarter.

“This was another strong quarter on the top and bottom line. … We think new customer behaviors will largely persist and we’re well-positioned to serve customers with the value and experience they’re looking for,” CEO Doug McMillon said in his opening remarks.

McMillon also thanked employees for their work to help Walmart customers in new, relevant ways amid the ongoing pandemic.

He said the company continues to reduce losses in its U.S. e-commerce division with sales growth of 79% in the quarter. He said e-commerce also contributed 5.7% toward Walmart U.S. sales comp of 6.4%, excluding fuel. Walmart marketplace and pickup and delivery sales were up sharply in the period. Walmart U.S. had sales of $88.353 billion in the quarter ending Oct. 31, up 6.2% from a  year ago. Operating income rose 9.9% to $4.589 billion year-over-year. Walmart U.S. also experienced a 14.2% drop in comp transactions with a 24% increase in average tickets indicating shoppers are building larger baskets and making fewer trips.

McMillon said the retailer is carrying more inventory in expectation of a busy holiday. He said in-stock levels are improving on consumable goods and while family gatherings will likely be smaller this year, he expects families will spend on decorations and celebrations to make things feel more normal.

John Furner, CEO of Walmart U.S., said Walmart is equipped to give families multiple ways to shop with online deals launched earlier this month. He said stores are also staying open later and pickup continues to be a winning formula for how shoppers want to get their groceries. McMillon said the company is still gathering data on its new Walmart+ subscription service and over time this will yield valuable insights into customer’s shopping behaviors. He said Walmart+ is part of the retailer’s ecosystem and hopefully will allow for more engagement with customers and a larger share of their wallet over time.

Sam’s Club also reported strong results with sales of $15.8 billion in the quarter, up 8.3% from a year ago. E-commerce sales grew 41% behind a strong direct-to-home performance and a growing curbside pickup business. Membership income rose 10.4%, which was the highest quarterly increase in more than five years. Sam’s increased its new member count by 28% in the quarter. This helped push comparable sales to 11.1%, without fuel. E-commerce contributed 2.3% to Sam’s comp sales. Average ticket rose 4% with comparable transactions up 6.8% in the quarter.

Walmart’s international business was also profitable with net sales of $29.6 billion, up 1.3%. Walmart attributed better sales to strong results from Flipkart, Canada and Mexico. Other businesses in Africa and Central America continued to be disrupted from the COVID-19 pandemic.

Judith McKenna, CEO of Walmart’s international business, said the majority divestitures of Asda in the United Kingdom and Seiyu in Japan allow the retailer to work with local partners to continue growing the businesses. She said the new business model where Walmart keeps a minority stake allows the retailer to learn from others and contribute where it can to the overall success of a business. She said in Argentina, Walmart fully divested that business to focus on key markets in a smaller overall global portfolio.

Analysts were pleased with the results from Walmart in the quarter and the largely positive comments on consumer spending patterns.

“Walmart continues to show solid momentum across all business segments and e-commerce is increasingly building a critical mass that we think will drive stickier relationships with customers, and drive valuation expansion for shareholders as the business continues to gain share of wallet and scale,” said Ben Bienvenu, an analyst with Stephens Inc.

Stephens reiterated its overweight or “buy” rating for Walmart and said future estimates and the price target are under review. Prior to the results, Stephens had a price target of $160 for Walmart shares. (Stephens conducts investment banking services for Walmart and is compensated accordingly.)

Moody’s analyst Charles O’Shea said there are no real areas of concern for Walmart after this blowout quarter. He said the company is “becoming almost boring with how well they’re performing.”

Shares of Walmart (NYSE: WMT) traded slightly lower in the morning session at $152.33, down 11 cents. During the past 52 weeks the share price has ranged between $153.40 and $102.