Walmart Inc. on Thursday posted solid second-quarter financial results, suggesting that the retail sector — including brick-and-mortar stores — may have some life.
Not all of Walmart’s results were positive. Profits in the three months ended July 31, 2019, declined $861 million to $3.6 billion. But the bottom line still topped Wall Street analyst expectations and the retail behemoth raised its outlook for the year for its U.S. business, including comparable-store sales, consolidated operating income and earnings per share, boosting the stock by more than 6 percent.
Same-store sales at Walmart U.S. grew 2.8 percent, fueled by e-commerce growth of 37 percent. With the latest increase, Walmart U.S. comparable-store sales have risen in the last 20 consecutive quarters.
However, Craig R. Johnson, president of Customer Growth Partners, pointed out that judging by the metric formerly known as traffic, Walmart U.S. logged “a dismal 0.6 percent growth, the worst since 2014. Strong and consistent transaction growth is the hallmark of all great retailers, whether it’s Costco Wholesale Corp., Target Corp. or TJX Companies. To sustain robust topline growth, Walmart needs to return year-over-year transaction growth to at least the 1.5 range that it averaged last year.”
Walmart reported EPS in the second quarter of $1.27, a slight decline from $1.29 per share in the same period in the prior fiscal year, but stronger than the retailer’s guidance. Total revenue in the quarter increased 1.8 percent to $130.4 billion from $1.28 billion, an addition of $2.3 billion. Wall Street analysts predicted $1.22 per share on revenues of $130.2 billion, which would have represented a 1.7 percent increase.
The results also highlighted Walmart’s strengths and in some ways inoculated it against Amazon‘s incursion. Grocery was one of the key areas of Walmart’s advances in e-commerce with expanded delivery capabilities.
“Having stores close to customers is a competitive advantage that we’re leveraging,” said Walmart Inc. chief executive officer Doug McMillon. “More than 2,700 stores offer free grocery pickup, and more than 1,100 stores offer same-day grocery delivery.” Walmart is on pace to offer same-day grocery delivery in 1,600 stores by the end of the year, and grocery pick-up at 3,100 stores. There are nearly 1,200 pickup towers, and Walmart will begin testing grocery delivery directly to consumers’ refrigerators in three weeks.
“You’ve heard us talk about our NextDay delivery offer that launched a few months ago,” McMillon said. “We set an original goal of serving about 75 percent of the U.S. population by year-end. We’ve already reached that annual goal and we’re working to expand it even further, including the available assortment.”
McMillon said commerce sales growth was strong in the quarter, calling out the retailer’s four-day July sales event.
“The key driver of July’s strength was online sales, up a stellar 19 percent, which is the fastest year-over-year growth in over five years,” said Johnson, adding that Amazon Prime Day, which inspired Walmart’s event and similar ones at Target and other retailers, was the key catalyst to the growth.
Sam’s Club comps were strong with an increase of 4.2 percent in the second quarter, and 10.7 percent on a two-year stacked basis, excluding fuel and tobacco. Walmart International delivered positive same-store sales in nine out of 10 markets.
Net sales at Walmart International declined 1.1 percent to $29.1 billion, and excluding constant currency, net sales rose 3.3 percent. Strength in Walmex and China were offset by softness in the U.K. and Canada. Operating income declined 2 percent, which was better than planned, the retailer said, adding that as it expected, the inclusion of Flipkart, the giant e-commerce business it acquired in India, negatively impacted profit results.
The retailer said each operating segment leveraged selling, general and administrative expenses.
Walmart expects fiscal 2020 EPS between a slight decrease and a slight increase, compared to its previous forecast of a low single-digit decline, and Walmart U.S. comp-store sales growth is seen between 2.5 percent and 3.5 percent.
There could be difficulties ahead with signs that consumer spending might be slowing. “Once again, the American consumer is strapping the economy on her back, and she is motoring forward, enjoying rising incomes while spending strongly but smartly — and focused sharply on value,” Johnson said.
Jharonne Martis, director of consumer research at Refinitiv, said, “Retailers are reporting second-quarter earnings and discussing China tariffs, and warning us not to expect much from them in the coming quarters. There have been 19 negative EPS pre-announcements for the third quarter of 2019 compared to seven positive ones and analysts polled by Refinitiv have been lowering third-quarter estimates.”
McMillon began a prerecorded conference call for analysts, saying: “Our hearts continue to be with our associates in El Paso [Texas] and Southaven [Mississippi] and we are focused on the safety of our associates and customers in all our stores and clubs. Those tragic and painful events will be with us forever, and our hearts go out to the families that were impacted.”
He continued to say that Walmart is “thinking through the broader issues related to gun violence and things we should do to help create safer communities. We would like for everyone to be reminded of the steps we’ve already taken” and went on to tick off points such as stopping the sale of handguns in every state except Alaska in the Nineties and not selling military-style rifles such as AR-15s since 2015, among other things.