General merchandise retailer Walmart Inc. (WMT – Free Walmart Stock Report) reported solid results for the fiscal second quarter (ended July 31st), propelling the shares moderately higher.
The top line came in at $130.4 billion, slightly less than our $130.8 billion estimate, and 1.8% higher year over year. On a constant-currency basis, revenue grew 2.9%. The gross profit margin declined 46 basis points. The inclusion of the Indian e-commerce subsidiary Flipkart contributed to the margin contraction, but the company also made price investments in various markets. Earnings of $1.27 were slightly less than the $1.29 tallied last year, owing to investment in e-commerce and higher wages for associates.
Walmart U.S. saw same-store sales (excluding fuel) rise 2.8%. Traffic was 60 basis points higher than a year ago. The average transaction amount grew 2.2%, but would have been higher were it not for slight deflation in food. Sales of groceries and private-label goods were solid. General merchandise comp sales were up a low-single-digit percentage, with strength in home, toys, and wireless lines. Too, health & wellness same-store sales increased by a mid-single-digit percentage, as branded drug inflation benefited results. This was somewhat offset by softness in weather-sensitive categories, like lawn & garden and apparel.
E-commerce sales grew 37%, reflecting strength in online grocery. Starting in the Fall, select Walmart associates will begin delivering groceries directly into the homes of customers. The service will soon be available to one million shoppers in various U.S. cities. Meanwhile, next-day delivery is currently available to around 75% of the U.S. population. Walmart has more than 2,700 stores (87% of the year-end goal) that offer free grocery pickup, and more than 1,100 stores (69%) with same-day grocery delivery.
Elsewhere, Sams's Club posted sequential sales growth of 4.3% (excluding fuel and tobacco), owing largely to greater traffic. The unit's profit increased an impressive 19.4%, and membership income was solid at 2.8%. The International business had nine out of ten markets record positive comp sales. Walmex same-store sales grew 5.5%. In China, comp sales increased 3%, and improved sequentially for the second consecutive quarter.
Management raised fiscal 2019 guidance modestly due to the solid second-quarter performance. Constant-currency net sales are expected to grow at least three percent versus the prior outlook of around three percent. Walmart U.S. is now forecast to reach the upper end of the original guidance range of positive 2.5% to 3%. E-commerce guidance was unchanged at 35%. The company is lowering expectations for International sales growth to a range between 3.0% and 4.0%, largely due to recent weakness in the U.K. and Canada. Lastly, adjusted EPS is expected to range from a slight decrease to a slight increase. This compares to original guidance of a decline in the low-single-digit percentage range.
Walmart's consistently strong comp performance and innovative omnichannel strategy has resulted in the shares having a high price-to-earnings multiple relative to other retailers. The shares are certainly not immune to the detrimental effects of escalating trade tensions with China. Still, conservative investors may find the stock to be a safe bet considering recent turbulence in the broader market.
About The Company:Walmart Inc. is the world’s largest retailer, operating 3,522 supercenters (includes sizable grocery departments), 415 discount stores, 660 Sam’s Clubs, and 735 Neighborhood Markets in the U.S., plus 6,363 foreign stores (mainly in Latin America, with the balance in Asia, Canada, and the U.K.) for total square footage of 1.164 billion (as of 1/31/17). Most stores are owned and are within 400 miles of an expanding network of distribution centers. Groceries accounted for 56% of U.S. sales, while sales per square foot were about $420.
– Kevin Downing
