General merchandise retailer Walmart (WMT – Free Walmart Stock Report) reported better-than-expected results for the fiscal fourth quarter ended January 31, 2019, and the shares are higher on the news.
Adjusted earnings per share rose 6% year over year to $1.41, higher than our estimate of $1.34. Numerous federal tax regulations issued in the quarter benefited earnings by about $0.04 per share.
The consolidated gross profit margin declined 21 basis points due to a mix shift toward e-commerce, growth in India, and price investments in certain U.S. markets.
Total revenue came in at $138.8 billion, up 1.9% year over year. On a constant-currency basis, the top line grew to $140.5 billion, up 3.1% and higher than our estimate of $139.9 billion. Same-store sales at Walmart U.S. grew 4.2% excluding fuel, as traffic rose 90 basis points and the average transaction amount increased 3.3%. Strong grocery sales, a better-than-expected holiday period, and the early release of government SNAP benefits (i.e., food stamps) helped lift results. For the full year, U.S. comp sales rose 3.6%, the highest annual growth rate in a decade.
E-commerce sales were up 43% for the quarter and 40% for the year, nearly doubling the level achieved in fiscal 2016. Still, management admitted that it needs to make more progress on improving profitability by increasing sales of lucrative home and apparel products. Indeed, WMT expects losses in e-commerce to increase this year, reflecting investments in infrastructure, people, and online grocery pickup and delivery. Encouragingly, grocery pickup is currently available to 69% of the U.S. population and grocery delivery is now at 36%. Walmart plans on doubling the latter figure this year.
International sales grew 2.7% in constant-currency terms, with sales from Walmex outperforming. Despite recent regulation reform in India that will make it harder for Walmart's Flipkart to compete with smaller online retailers, management remains optimistic about the size of the market and the low penetration of e-commerce in the retail landscape. It expects some additional costs to comply with the new regulations, but does not think they will be significant enough to impact the total company guidance for the year.
Walmart brass reiterated the fiscal 2019 guidance it provided four months ago. Total net sales should rise 3% on a constant-currency basis. The back half of the year should be stronger than the first half, owing to the winding down of its Brazil business and the addition of Flipkart. Walmart U.S. should experience comp sales growth of 2.5% to 3%, and the cadence from quarter to quarter should be fairly consistent. E-commerce sales are expected to be up 35%. Earnings per share will likely decline by a low single-digit percentage, owing to a higher tax rate, as Flipkart losses have very little tax benefit. Excluding Flipkart, earnings would likely grow by a low- to mid-single digit percentage. Quarterly earnings are expected to fall by 10% in the first period, and then get progressively better throughout the year. In response, we have shaved a nickel from our first-quarter estimate, which now stands at $1.03. We are leaving intact our full-year earnings estimate of $4.70.
Walmart continues to execute well in a favorable demand environment. Initiatives to improve the customer shopping experience are paying off and the e-commerce business continues to grow at a steadfast pace. The shares may interest conservative investors, but long-term price appreciation potential is limited at this time.
About The Company: Walmart Stores, 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
