Shares of Walmart Inc. were largely flat Thursday morning after the retail and e-commerce giant beat Wall Street estimates on a number of key metrics, showing continued strength both in digital and stores.
Walmart reported adjusted earnings per share of $1.08 in the third quarter on total revenues of $124.9 billion, a 1.4 percent increase over $123.2 billion in last year’s third quarter. The Wall Street consensus EPS estimate was $1.01 per share. Profit came in at $1.71 billion, a 2.2 percent dip from the $1.75 billion reported in last year’s third quarter.
Updating for the first quarter of next year, Walmart said it expects GAAP EPS of $2.26 to $2.36, and adjusted EPS of $4.75 to $4.85, and comps should be ahead by at least 3 percent.
Walmart U.S. posted a 3.4 percent comp-store sales increase, excluding fuel in the third quarter, versus a 2.7 percent gain in last year’s period. Apparel had the strongest comp-store sales, in part due to strength in the new private brands. U.S. e-commerce sales advanced 43 percent.
Sam’s Club comps rose 5.7 percent, excluding fuel and tobacco. Comp-store sales were positive in all major international markets, led by a 6.3 percent gain in Mexico.
Walmart Inc. paid $16 billion for a 77 percent stake in India’s largest online retailer, Flipkart, which is included in the company’s operating results for 44 days of the quarter and drove significant operating income dilution in line with expectations. Flipkart was in the news this week when group chief executive officer Binny Bansal resigned in the wake of “serious misconduct” accusations, which Walmart declined to discuss.
Doug McMillon, Walmart Inc. ceo, credited the strong performance on “taking risks and learning from our successes and failures,” citing innovations such as increasing automation and using robotics in the supply chain and across the back, middle and front of the store; aggressively rolling out grocery pickup and delivery in the U.S.; testing different solutions for last mile delivery; pioneering the use of blockchain for food safety at scale, and testing conversational commerce with the Jetblack pilot.
“We’re making acquisitions and [forging] partnerships to play offense and expand our e-commerce assortment,” McMillon said. “We’re adding more digitally native brands to the portfolio. We have an opportunity to improve the margin mix by expanding the tail of the assortment through first-party items and marketplace. The process takes time, and we’re making progress. We have a new partnership with Ellen DeGeneres and acquired innerwear specialty retailer Bare Necessities.”
During the third quarter, the Bentonville, Ark.-based giant also announced a partnership with PayPal to provide financial services and products and launched Bonobos and Nike on Walmart-owned Jet.com. It also acquired online plus-size retailer Eloquii. A test lab opening in Dallas will become an innovation lab for Sam’s Club, and a high-tech grocery operations center in California will move 40 percent more product than a traditional distribution center.
In the war with Amazon over holiday sales, McMillon said millions more marketplace items are available for free two-day shipping. Amazon dropped its $25 order minimum to offer free holiday shipping to consumers, including non-Prime members, with most products arriving in five to eight days. Prime members can receive free same-day delivery on millions of items.
Sam’s Club has been building momentum with technology, launching apps “at the rate of a start-up,” McMillon said, noting that e-commerce grew 32 percent in the recent third quarter.
Flipkart’s Big Billion Days event was a success with the highest number of concurrent users on the Flipkart app — nearly 1 million simultaneously — and 1 million smartphones sold in the first hour of the event. Walmex launched a new digital platform, Cashi, that offers a secure digital payment option on consumers’ mobile phones. “We recently announced our agreement to acquire Cornershop, an online marketplace platform for on-demand delivery in Mexico and Chile,” McMillon said, adding that the company continues to gain market share in Central America.
Comps in China grew by 2.2 percent, and in Canada, rose 2.5 percent. In the U.K., where the proposed merger of ASDA and Sainsbury is waiting for government approval, comps increased 2 percent.
Operating income increased 4.7 percent in the third quarter to $4.98 billion, from $4.76 in the year-ago third quarter. Gross margin rate declined 28 basis points due primarily to the planned pricing strategy, transportation increases, and the mix effects of the growing e-commerce business, partially offset by the overlap from last year’s hurricanes. Income before income taxes declined 10.5 percent from $2.89 billion to $2.57 billion.