Walmart Inc.’s financial results for the second quarter of 2019 pleased investors on Thursday, sending the stock up $9.78 or nearly 11 percent in pre-market trading to nearly $100, as the retail giant reported a 4.5 percent same-store sales increase, its strongest in more than a decade, beating Wall Street’s consensus estimate of 2.5 percent. Traffic and ticket growth rose more than 2 percent, an indication of solid market share gains against a backdrop of consumer spending confidence, retail analysts said.
“With today’s report, Walmart has finally returned to the ranks of superior performers,” said Craig Johnson, president of Customer Growth Partners. “The steady rebuilding [chief executive officer] Doug McMillon has led for several years now has slowly been gathering steam, but the moves have been so wide-ranging, it’s taken time to break out. The break-out quarter has now occurred, albeit aided by pent-up winter demand that was unleashed in May.”
Walmart’s adjusted earnings per share of $1.29 for the second quarter, a 19 percent increase over $1.08 per share a year earlier. That beat Wall Street’s consensus estimate of $1.22 per share. Total revenues tallied $128 billion, a 3.8 percent gain over $123.4 billion a year earlier.
Charges related to the company’s sale its Brazilian business and other one-off items pushed it to net losses of $861 million, down from earnings of $2.9 billion a year earlier.
Besides the strong performance of Walmart’s domestic brick-and-mortar fleet, Walmart U.S. e-commerce sales revved up to post 40 percent growth; Sam’s Club comp store-sales rose 5 percent excluding fuel. The international unit recorded positive comps in its top four markets, U.K., Canada, China and Mexico, where Walmex logged a comp-store sales increase of more than 5 percent.
McMillon said the retailer is working to expand omnichannel capabilities and innovate to save customers’ time. “Two years ago, we had no pickup towers and by the end of this year, we’ll have more than 700,” he said. “We now have more than 1,800 locations with grocery pickup locations and we’re making good progress on activating grocery delivery to cover 40 percent of the U.S. population by year-end.”
The retailer is testing self-driving cars in Arizona for grocery pickup and automated picking capabilities for grocery pickup in Salem, N.H. “Overall, our omnichannel initiatives are contributing to comp sales growth and providing customers with new levels of shopping convenience,” McMillon said.
The ceo ticked off several new brands from the 1,100 that have been added to walmart.com such as Zwilling J. A. Henckels cutlery and cookware, Therm-a-Rest outdoor products, O’Neill surf and water apparel, Shimano cycling products and brands such as Steve Madden that are available on the dedicated Lord & Taylor shop. “We have more work to do on our e-commerce assortment to get to the margin levels we desire and we’re in discussions to bring more key brands to our site,” McMillon said.
Strength in grocery was driven by strong comp sales and traffic in the quarter, health and wellness continued to grow in the low-single-digit range, general merchandise accelerated to midsingle-digits, electronics comped strongly and warm weather boosted traffic and sales in apparel.
Jet.com will open a fresh fulfillment center to offer same-day grocery delivery in New York. A same-day subscription service that fills requests made via text, called JetBlack, is gearing up to serve customers, while at the Outdoor Retailer trade show, two Walmart acquisitions, Spatialand and Moosejaw teamed up to showcase a virtual reality camping experience.
“We’re pleased to have received an unconditional approval by the Competition Commission of India for our acquisition of a majority stake in Flipkart and we continue to work through the approval process regarding the proposed combination of Asda with Sainsbury’s in the U.K.,” McMillon said. “We were pleased to gain regulatory approval in Brazil and closed the sale of 80 percent of that business earlier this month. We continue to partner in the areas where it makes sense. The recent announcement with Microsoft is related to our ongoing digital transformation. Our ongoing relationships with Google, Rakuten and JD.com are productive and we enjoy building win-win collaborations to serve customers more effectively.”
Brett Biggs, executive vice president and chief financial officer, said Walmart expects sales for this fiscal year to increase 2 percent in constant currencies, compared with previous guidance of 1.5 percent to 2 percent growth, while same-store sales are expected to expand 3 percent versus earlier guidance of 2 percent growth, excluding fuel. Adjusted EPS is expected be in the range of $4.90 to $5.05 compared with prior guidance of $4.75 to $5. Wall Street’s consensus was $4.81.
“The updated guidance doesn’t include any assumed change in value in our investment in JD.com. Also, the guidance excludes any impact from our pending investment in Flipkart, as this transaction is yet to close,” he said. “At the time we disclosed the transaction, we estimated a 25 cents to 30 cents negative EPS impact assuming the transaction closed mid-year.”
Previous guidance for consolidated net sales growth of 1.5 percent to 2 percent includes headwinds of about 140 basis points due to the closure of Sam’s Club locations in the U.S. and removal of tobacco from certain clubs. “The other significant change is related to the divestiture of the majority of Brazil, which was not anticipated when we gave sales guidance,” Biggs said. “Given that we won’t be consolidating this entity in the future, we expect a negative impact of approximately 60 basis points, which is included in the updated guidance.”