Walmart Inc. stock was on the rise in early morning trading after the retailer beat Wall Street estimates for first quarter results. While overall profits dropped 30 percent because of the impact of Walmart’s investment in JD.com, profits of $1.14 a share on revenue of $122.7 billion beat Wall Street’s estimate of $1.12 a share on $120.5 billion, an increase of 4.4 percent. This was enough for investors, who sent the shares up 1.94 percent to $86.13 in early morning trading. The retail giant recorded $1 in profit on revenue of $117.5 billion in the same period last year.
Walmart U.S. same-store sales increased 2.1 percent; comparable traffic rose 0.8 percent, while Sam’s Club’s comps increased 3.8 percent, and net sales at Walmart International of $30.3 billion gained 11.7 percent, with eight of the eleven markets posting positive comps, including the retailer’s four largest markets.
There was a lot of news on the international front during the quarter, including Walmart’s investment in Flipkart, the e-commerce platform in India, which Amazon was reportedly also eager to aquire.
Walmart’s equity investment in Chinese e-commerce platform JD.com was responsible for the 30 percent decline in profit. Higher revenues were more than offset by a 47 cent loss related to the investment. Since taking a stake in JD.com in fiscal year 2017, the market value of the company’s investment increased $3.7 billion as of January 31 of this calendar year. Beginning in fiscal year 2019, due to a change in U.S. accounting principles, Walmart is required to include unrealized gains or losses of certain equity investments in net income. The company in the first quarter recorded an unrealized loss of $1.8 billion due to a decline in the JD.com stock price during the quarter.
Also in the first quarter, Walmart International unveiled the proposed merger of its U.K. Asda unit with Sainsbury’s.
E-commerce sales grew 33 percent in the first quarter, and are expect to increase about 40 percent for the full year. Retail experts said that Wall Street has the expectation of Walmart delivering Amazon-like margins as a result of the Bentonville, Ark.-based retailer posting outsize increases last year. After reporting more tempered, but still impressive, e-commerce growth in the fourth quarter, Wall Street punished Walmart’s shares.
Nonetheless, a lot is happening on the ecommerce front, including a newly-redesigned Walmart web site and app, which will include a new Lord & Taylor store that will offer a broader assortment of premium brands.
“We’re on track to increase online grocery pickup by around 1,000 stores this year to reach more than 2,100 locations across the U.S. with the service,” said Walmart chief executive officer Douglas McMillon said. “We’re also rolling out grocery delivery to about 800 stores by year-end, allowing us to cover 40 percent of the U.S. population with delivery. The e-commerce food business we’ve been building is important not only because of the volume it’s driving but, strategically, it’s helping to grow the number of omni-channel customers we serve.”
Grocery is a key battleground between Walmart and Amazon, which acquired Whole Foods last year and has opened cashier-less groceries. However, experts say grocery has a steep learning curve, and Walmart has a big lead.
Gross margin rate declined 23 basis points primarily due to price investments and higher transportation expenses as a result of higher fuel costs and third-party transportation rate pressures. Operating expenses deleveraged about 11 basis points largely due to investments in ecommerce and technology. Stores leveraged expenses in the quarter as productivity improvements more than offset the impacts of increased associate wages.
Sam’s Club comps improved 5.2 percent, excluding fuel and a 140 basis point decrease for tobacco.
All eyes were on Walmart to see whether the retail behemoth, which is not only a bellwether of the industry’s health but considered a proxy for the U.S. economy, would deliver positive results, following Macy’s Inc. reporting its best performance in three years on Wednesday.