Walmart storeWalmart store, Clarkston, Washington, USA - 11 Jun 2018

Doug McMillon, chief executive officer of Walmart Inc., declared the economic health of consumers to be strong on Thursday when the retailer reported another solid quarter of results. With Black Friday a little over two weeks away, McMillon acknowledged “potential hurdles, including the shortened holiday selling season,” but said Walmart is ready, and promised to “remain nimble, so we can adjust as needed.”

Walmart’s net income in the third quarter ended Oct. 31, soared 92.3 percent to $3.28 billion, from $1.7 billion in the year-ago third quarter. Total revenue grew 2.5 percent to $127.9 billion from $124.89 billion in the prior year third quarter, but this was below analysts’ estimates of $128.6 billion. Comp-store sales rose 3.2 percent and Walmart Inc.’s third-quarter earnings per share increased 7.4 percent to $1.16, beating Wall Street analysts’ estimates of $1.09 a share.

Walmart e-commerce logged its best quarter of sales growth this year with an increase of 41 percent. Comparable transactions rose 1.3 percent and ticket, up 1.9 percent. McMillon said there was strength across most key categories and channels. Grocery logged mid-single-digit comp sales growth, fueled by the retailer’s suite of delivery options. Same-day grocery pickup will soon be offered at more than 3,100 stores, with same-day grocery delivery available at 1,600 units.

Delivery Unlimited, a membership program, was launched during the quarter, and in-home delivery is being piloted in three markets with more than 1 million participating customers. The service brings online grocery orders all the way to consumers’ refrigerators and is a play to grow Walmart’s share of wallet with busy families.

Health and wellness comp sales had a mid-single-digit percentage increase, general merchandise comps rose by a low-single-digit percentage with strength in home and hardlines, but unseasonably warm weather resulted in softness in apparel.

McMillon admitted that with strength being driven by the low-margin food category, Walmart needs to “do more and move faster, especially with our assortment, including marketplace. I continue to challenge the team to improve the overall economics of the business. We’re committed to progress and building a larger, healthier e-commerce business. Our customers want that, our marketplace sellers want that, and so do we.”

Walmart’s operating income in the third quarter was $4.76 billion, a 6.1 percent increase over the prior year’s third quarter, and its best showing of the year. Total operating profits rose 0.4 percent, the first increase since 2017’s third quarter.

Gross profit was down 36 basis points, an improvement over the second quarter’s 46 basis point decline. U.S. gross margin fell four basis points, but operating profit rose 17 basis points, a 7 percent jump over the second quarter.

Charles O’Shea, Moody’s retail analyst, pointed out that growth in U.S. revenue, particularly at Walmart U.S. e-commerce, along with a slight operating margin improvement, achieved in a “hotly promotional environment, speaks to the quality of Walmart’s operating discipline.

“Walmart will again be one of the primary pacesetters, considering the increasing leverage of its massive store base for online pickup and accelerated shipping, especially in food, which will ripple into other higher-margin categories,” O’Shea said.

Walmart made its official entrance into the health-care field with the opening of a Walmart Health center in Dallas, Ga., where it’s partnering with local providers to offer affordable services with a low, transparent pricing model, encompassing everything from primary care to lab work to dental. The retailer said it plans to open a second facility in an as-yet undisclosed location, with several more in its sights.

During the third quarter, Walmart sold women’s vintage-inspired digital native brand Modcloth, and a change in leadership at Jetblack, the concierge service, prompted rumors that it too may be sold.

Walmart raised guidance for the full year of fiscal 2020, including Flipkart, with EPS now expected to increase slightly compared to last year. The retailer’s prior guidance called for EPS to range from a slight decrease to a slight increase. Excluding Flipkart, EPS is expected to increase by a high-single-digit percentage range versus the prior guidance of a mid- to high-single-digit percentage increase.

Seven out of 10 international markets registered positive comp sales in the third quarter, down from nine countries with positive comps in the second quarter. Net sales for the division advanced 4.8 percent, including a negative $1 billion currency effect. The U.K. and Central America turned in negative comps in the quarter, while China and Mexico delivered increases of 3.7 percent, and 3.8 percent, respectively. However, Mexico, while positive, decelerated.

Despite Flipkart pressuring profitability, O’Shea believes it’s a valuable long-term strategic asset. “Net-net, Walmart continues to position itself at the very top of global retail and will continue to get stronger and put increasing pressure on the rest of the pack,” he said.

Continued momentum at Sam’s Club included a 5.7 percent increase for comp transactions and 32 percent jump in e-commerce sales. Comp sales rose 0.6 percent, excluding fuel, and 4.1 percent, excluding fuel and tobacco. On a two-year stacked basis, comp sales, excluding fuel and tobacco, rose 9.8 percent, which is among the strongest results in recent years.

Sam’s Club ceo John Furner is taking the reins at Walmart U.S., following the departure of Greg Foran, who ushered in positive comps during every quarter of his five-year tenure. “I’m confident John will continue the momentum,” McMillon said.

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