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Walmart Falls After Cut in Fiscal View, Q2 Earnings In Line

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Shares of Wal-Mart Stores Inc. (WMT - Free Report) went down 1% after it lowered its fiscal guidance during the second quarter fiscal 2015 earnings call. However, the company posted in-line earnings and better-than-expected revenues, after five weak quarters in a row.

Walmart’s fiscal second quarter 2015 adjusted earnings of $1.21 per share matched the Zacks Consensus Estimate, but declined 1.6% from the year-ago earnings of $1.23 per share due to soft comps in the U.S. and Sam’s Club and a decline in operating income. Earnings were within management’s guidance range of $1.15 and $1.25 per share.


Total revenue of the retailer increased 2.8% to $120.1 billion (including membership and other income) and beat the Zacks Consensus Estimate of $119.1 billion. The better-than-expected sales were encouraging as the company delivered weak results in the past five quarters due to a tough economic environment. Sales increased on improvements in the International business, higher Neighborhood Market sales in the U.S. and strong e-commerce growth.

Global e-commerce sales increased approximately 24% on a constant currency basis, with double-digit growth in the U.S., U.K., China and Brazil. However,currency fluctuations reduced sales by $696 million in the quarter.

Total revenue comprised net sales of $119.3 billion (up 2.8% year over year or 3.4% on a constant currency basis) and membership and other income of $789 million (up 8.2% on a year over year).On a constant currency basis, operating income declined 0.3% to $6.8 billion in the second quarter.

Segment Details

Walmart U.S: The segment posted net sales growth of 2.7% to $70.6 billion in the quarter, including the impact of fuel sales. Operating income however declined 2.4% to $5.25 billion due to higher operating expenses.

U.S. same-store sales (comps) for the 13-week period ending Aug 1, 2014 remained flat versus a decline of 0.3% in the prior-year quarter. Comp sales were in line with the company’s expectations. While comp traffic declined 1.1%, average ticket increased 1.1% in the quarter. E-commerce sales positively impacted comp sales by 0.3% in the quarter.

Comp sales for the Neighborhood Market format rose approximately 5.6%, which benefited U.S. comps. During the second quarter, the company opened 22 neighborhood markets. The company expects to deliver 180 to 200 new units for the year.

Walmart International: Segment net sales, including fuel sales, increased 3.1% (increased 5.3% on a constant currency basis) to $33.9 billion compared to the prior year quarter. Currency fluctuations impacted international sales by $696 million in the quarter.

Operating income increased 8% to $1.489 billion, largely benefiting from price investment and cost containment efforts.

Sam’s Club: The segment, which comprises membership warehouse clubs, posted net sales growth, including fuel impact, of 2.3% to $14.9 billion. Excluding fuel impact, sales increased 1.7%. Sam’s Club operating income, excluding fuel, declined 10.2% to $0.466 billion in the quarter.

Sam’s Club's comps, excluding the impact of fuel sales, remained flat versus an increase of 1.7% in the prior-year quarter. Comp sales were in line with the company’s expectations. Sam’s Club comp traffic was up 0.3%, while average ticket was down 0.3%. E-commerce sales positively impacted comp sales by approximately 0.3% in the quarter.

Other Financial Update

During the quarter, Walmart paid $1.55 billion in dividends and repurchased approximately 4 million shares for $307 million.

Third Quarter 2015 Outlook

For the third quarter of fiscal 2015, Walmart expects its adjusted earnings to range between $1.10 and $1.20 per share, lower than last year’s earnings of $1.24 per share. Walmart expects U.S. comp sales to be relatively flat for the 13-week period ending Oct 31, as against a decline of 0.3% last year. Sam’s Club comp sales, without the impact of fuel sales, are expected to be slightly positive compared to a 1.1% increase last year. The company expects third quarter tax rate to be around 34%.

Lowered Fiscal 2015 Outlook

Walmart lowered its fiscal 2015 earnings guidance to a range of $4.90 to $5.15 per share, from the previous range of $5.10 to $5.45. The new full year guidance reflects incremental investments in e-commerce and higher U.S. health-care costs than previously anticipated.

Walmart carries a Zacks Rank #3 (Hold).

Other Stocks to Consider

Some better-ranked retailers worth considering include Citi Trends Inc. , Mens Wearhouse Inc. and Buckle Inc. (BKE - Free Report) . While Citi Trends and Mens Wearhouse sport a Zacks Rank #1 (Strong Buy), Buckle Inc. holds a Zacks Rank #2 (Buy).

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