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Walmart Inc. on Thursday posted stronger-than-expected earnings for the first quarter of fiscal 2020, but the outlook for the second quarter was somewhat cloudy with the company’s proposed Asda merger with Sainsbury’s blocked by U.K.’s Competition and Markets Authority, and the retailer saying it may be forced to raise consumer prices due the Trump administration’s tariffs on Chinese-made products.

Walmart finished the first quarter ended April 30 with a 3.4 percent increase in U.S. same-store sales — the highest gain in the period in the U.S. in nine years — and earnings per share of $1.13, easily beat Wall Street analysts’ consensus estimate of $1.02 per share.

E-commerce sales surged 37 percent in the first quarter, but revenue of $123.9 billion at the world’s largest retailer came up short compared to the analyst estimate of $124.94 billion, with international currency headwinds blamed. Net income during the 2020 first quarter increased 80 percent to $3.84 billion, from $ 2.134 billion in the prior-year period.

Walmart U.S. net sales rose 3.3 percent to $80.3 billion, from $77.7 billion in the year-ago first quarter. Sam’s Club revenues rose 1.5 percent to $13.8 billion, from $13.6 billion last year. Sam’s Club delivered a comp-store sales increase of 3 percent, excluding fuel and tobacco.

 

Drew Barrymore’s Flower Home brand launched in the first quarter. 

The international division was led by Mexico with a comp-store sales gain of 4.7 percent, but overall sales declined 4.9 percent to $28.8 billion, from $30.3 billion in the first quarter of 2019. Seven international markets delivered positive comps in the first quarter, however, the deconsolidation of Brazil was a sales headwind, offset partially by the inclusion of Flipkart sales. Walmex, Canada and China posted positive same-store sales, while comps at Asda fell 1.1 percent.

The consolidated gross profit margin declined 27 basis points versus last year, due mainly to pressure in international from mix changes in some of Walmart’s largest markets, and the inclusion of Flipkart in this year’s results.

Walmart chairman and chief operating officer Doug McMillon said, “We’ve been mirroring our e-commerce inventory in the U.S. to enable free next-day delivery from walmart.com. Earlier this week, we launched this service in the Southwest and will ultimately cover about 75 percent of the country by the end of the year.”

In announcing the delivery offer for eligible minimum orders of $35, Walmart pointedly took aim at Amazon’s earlier launch of two-day, free delivery for Prime members, who pay $119 annually, crowing that it has no membership fees.

“Increasingly, we’re offering customers more ways to shop with Walmart,” McMillon said. “In addition to next-day delivery on an assortment of bestsellers, customers can shop in our stores, pick up their order, buy groceries and have an increasing number of other store items delivered same-day, or via the two-day, free-shipping assortment that we’ve been building.”

Executive vice president and chief financial officer Brett Biggs said Walmart is elevating the omnichannel shopping experience in markets around the world, and customers are responding. “We’re reducing friction in their lives while leveraging our unique assets and financial strength to drive profitability over time and create sustainable, long-term competitive advantages,” he said. “In the U.S., we’re seeing strong comp-store sales, improved operating income growth and market share gains, according to Nielsen and the NPD Group. We continue to deliver solid near-term results while positioning the business for the longer term.”

Walmart’s focus on increasing its Customer Value Index resulted in a nearly five-percentage-point gain since January due to improvements in delivery, display and pricing. “We also made progress on increasing sales in key areas including home and apparel, which helped gross margin rates this quarter,” said Biggs. “Our focus remains on improving the assortment with new key brands and driving efficiency in our delivery capabilities.”

The Bentonville, Ark.-based retailer is scaling free grocery pickup to 3,100 stores by year-end from 2,450 stores now, and same-day grocery delivery to 1,600 units from the current 1,000. “We’re on track to provide coverage to about 50 percent and nearly 80 percent of the U.S. population, respectively,” Biggs said. “Customers want product faster than ever before, and Walmart is the best positioned in the industry to deliver grocery the same day.”

McMillon expressed disappointment over the CMA scuttling the proposed Asda-Sainsbury’s combination. “It would’ve been good for customers and the businesses,” he said. “Asda continues to focus on delivering against our strategy and has built momentum in the business, which is impressive.”

Biggs said Walmart is committed to strengthening Asda’s long-term success, including a potential initial public offering in the future.

Biggs admitted that Walmart is facing tougher sales comparisons in the second quarter due to the timing of weather-related events last year, but he stressed that the underlying business is strong and the omnichannel strategy is working. “Currency will likely be a headwind in Q2,” he said. “Based on current exchange rates, we estimate sales will be negatively affected by about $1 billion, which is higher than what we anticipated at the beginning of the year.”

Walmart launched during the quarter new voice-ordering capabilities for grocery and its Store No. 8 incubator, unveiled the Intelligent Retail Lab at a live store in Levittown, N.Y., to explore the possibilities of how AI can contribute to the retail experience through real-world solutions. New partnerships were introduced with Drew Barrymore for home products, Bobbi Brown in the health and wellness area, and Kidbox, children’s apparel.

The retailer announced new sustainability goals, including making its private brand packaging 100 percent recyclable by 2025, and signing up participants for Project Gigaton, which works with suppliers to keep 1 billion metric tons of emissions out of the global value chains by 2030. 

Shares of Walmart on Thursday rose $1.40, or 1.40 percent, to close at $101.31, on the New York Stock Exchange.