General goods retailer Wal-Mart Stores (WMT - Free Wal-Mart Stock Report) reported solid results for the January interim. Total revenue came in at $130.9 billion for the fourth quarter (years end January 31st), up 1% year over year, and 3% in constant-currency terms. Earnings per share of $1.30 were toward the high end of the company's guidance range, but fell $0.02 short of our earlier estimate.
Domestic same-store sales of 1.8% were better than expected, thanks largely to a 1.4% increase in traffic. This marked the ninth-consecutive quarter with positive traffic growth. E-commerce activity also helped lift the comp by 40 basis points. Encouragingly, the Grocery business increased sales despite a 90-basis-point headwind from food deflation.
In general, Walmart U.S. is benefiting from new technology that's helping to improve stock levels and better manage inventory. The company believes this, along with new training academies, are leading to cleaners stores, friendlier service, and faster check-out times. Still, investments in people and IT led companywide operating expenses up 58 basis points in the fourth quarter.
Management noted that sales have been slower than expected to start the year, due to a delay in tax refunds versus last year. It expects domestic comp sales for the April quarter to land between 1.0% and 1.5%.
Global e-commerce sales were up 15.5% in the January period, due to a 36% rise in domestic activity. Customers appear to be embracing new distribution formats, like shop-to-home, ship-to-store, pickup today, and online grocery. Notably, WMT launched a free 2-day shipping program on orders of $35 or more. This appears to be in direct response to a similar offer from Amazon.com (AMZN) for free 2-day shipping on orders of $50 or more. Wal-Mart has reportedly seen an uptick in business since the launch.
Elsewhere, the International unit has done reasonably well, with ten of 11 markets posting positive comp sales for the year and seven of those increasing comps by more than 4%. Total net sales fell 5.1%, but grew 3.0% excluding the negative impact of currency exchange. Wal-Mart also increased its stake in Chinese retailer JD.com to 10%.
The company had previously forecast flat earnings in fiscal 2017, but has since changed that outlook, owing to a stronger U.S. dollar versus the Mexican peso, and a higher tax rate. Adjusted earnings per share are now expected to fall between $4.20 (down 3% year over year) and $4.40 (up 2%). Adverse currency development is expected to shave off a nickel from the bottom line. For the first quarter, earnings ought to come in between $0.90 and $1.00. In response to the updated guidance, we are lowering our April-quarter estimate to $0.95 and our full-year call to $4.30.
Conservative investors may want to take a closer look at these shares, as they have decent long-term price appreciation potential on a risk-adjusted basis. Although fiscal 2017 will be another investment year, we think the shift toward e-commerce will ultimately help Wal-Mart in the years to come.
About The Company: Wal-Mart Stores, Inc. is the world’s largest retailer, operating 3,465 supercenters (includes sizable grocery departments), 442 discount stores, 655 Sam’s Clubs, and 667 Neighborhood Markets in the U.S., plus 6,299 foreign stores (mainly in Latin America, with the balance in Asia, Canada, and the U.K.) for total square footage of 1.149 billion (as of 1/31/16). 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.
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
