Wal-Mart Stores Inc. saw its shares drop 3.1 percent in trading Thursday after the world’s largest retailer reported third-quarter results that missed revenue estimates but surpassed earnings-per-share forecasts.
The company reported third-quarter earnings per share of 98 cents on total revenues of $118.2 billion, compared with $1.03 EPS on revenues of $118.2 billion in the 2016 third quarter. While EPS surpassed Wall Street’s consensus estimate of 96 cents a share, the retailer fell short of the $118.69 billion in revenue analysts were looking for.
Net sales in the third quarter ended Oct. 31 rose 0.5 percent to $117.1 billion from $116.59 billion in the same 2016 quarter. Net income declined 8.2 percent to $3.03 billion from $3.3 billion in last year’s third quarter. U.S. third-quarter same-store sales rose 1.2 percent at Wal-Mart stores, while Sam’s Club’s comps were up 1.4 percent, excluding fuel.
Operating income declined 10.4 percent year-over-year in the third quarter of 2017, including a gain of $86 million on the sale of shopping centers in Chile. Without currency fluctuations, operating income fell 8.1 percent.
“We delivered another solid quarter and are pleased with the continued momentum in the business,” said Doug McMillon, the retailer’s chief executive officer. “We’re executing well in our stores and making strategic investments in e-commerce to accelerate growth. We’re gaining traction and moving faster to better serve our customers every day.”
McMillon pointed out that there was net sales growth from every business segment in the third quarter of 2017, although the results included the operating impact of the retail giant’s Jet.com acquisition, as well as the transaction costs, both of which were initially forecast to be in the fourth quarter.
The ceo said walmart.com is gaining traction and scaling fast with 8 million stockkeeping units added in the past three months. “E-commerce contributed 50 basis points to our Q3 Wal-Mart U.S. comp, which is our largest contribution yet,” McMillon said. “It’s great to see an improving e-commerce business complement the momentum we have in our stores.”
McMillon said that Marc Lore, ceo of Jet.com, who joined Wal-Mart as ceo of global e-commerce “has hit the ground running since the acquisition was finalized. We immediately set up teams to accelerate our integration efforts and leverage our strengths, such as optimizing our combined fulfillment networks, utilizing our scale in areas like shipping, sharing our assortment and leveraging the strengths of our marketing teams.”
On a constant currency basis, global e-commerce sales and GMV increased 20.6 percent and 16.8 percent, respectively. “The U.S. results were stronger than those in our key international markets, driven by the marketplace and a contribution from Jet.com.” McMillon said Wal-Mart continues to roll out online grocery and grow the pick-up business in stores and clubs.
McMillon said Wal-Mart has positioned its business in China to win. “We recently announced we own roughly 10 percent of JD.com’s shares and we jointly launched two new services. Our Sam’s Club flagship store launched on JD’s web site.” In addition, a Wal-Mart Global imports store bowed on JD.com Worldwide, the company’s cross-border platform, offering thousands of products imported from Wal-Mart stores around the world.
Wal-Mart also made an investment in New Dada, China’s largest local on-demand logistics and grocery online to offline, or O2O, seamless e-commerce platform. “New Dada is enabling two-hour delivery service from more than 45 Wal-Mart locations,” McMillon said. “It’s amazing to see how O2O is changing how Chinese consumers shop. Densely populated cities and favorable delivery economics enable two-hour delivery and we’re looking to expand the number of locations using New Dada.”
Wal-Mart’s e-commerce expansion in China comes as its bricks-and-mortar stores face increasing worker demonstrations and unrest over changes in scheduling practices.
Net sales at Wal-Mart International were $28.4 billion, a 4.8 percent decrease from $29.8 billion in the 2016 third quarter. Excluding currency impacts, net sales were $30.5 billion, an increase of 2.4 percent.
Ten of 11 international markets posted positive comps and seven of those grew comp sales by more than four percent. “Walmex continued to lead the way,” McMillon said. The turnaround at Asda in the U.K. is making progress, “but it will continue to take time.”
McMillon said the company will prune its portfolio if need be. “You’ve seen examples of this recently in Chile and Mexico and we’ll continue to evaluate and adjust, when it’s best,” he said.
Scan and Go at Sam’s Club launched nationwide. The mobile checkout and payment solution allows members to skip the checkout line, and McMillon said it’s being well-received.
Gross margin increased 32 basis points in the third quarter. SG&A also increased due to previously announced investments in people and technology. Operating expenses rose 8.6 percent for the same reasons. Operating income in the U.S. declined 11.3 percent for the quarter.
For the fourth quarter, Wal-Mart expects comps in the range of 1 percent to 1.5 percent. The retailer increased to the bottom end of its full-year adjusted EPS guidance to a new range of $4.20 to $4.35.
Wal-Mart gave few specifics about its plans for the holiday season. “Overall, we’re gearing up for the holidays, our busiest time of the year, and we’ll be ready with great items at low prices to delight our customers,” said Brett Biggs, chief financial officer. “Here in the U.S. we’ll have an expanded assortment online and available for pickup, in addition to holiday helpers in stores to help speed customers through the checkout line.
“We’re pleased with the underlying momentum in the business and feel good about our plans for the fourth quarter,” Biggs added. “We’re well-positioned for holiday with newness, exciting gift items, and EDLP throughout the assortment. All the pieces are in place to ensure a great shopping experience in our stores and online.”
In the quarter, Wal-Mart paid approximately $1.5 billion in dividends and repurchased 19.6 million shares for approximately $1.4 billion. Year-to-date, the retailer has returned $10.9 billion to shareholders. As of the end of the third quarter, it had utilized approximately $8.7 billion of the current $20 billion share repurchase authorization.