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Walmart (WMT) Raises Outlook on Solid Q2 Earnings & Sales

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Walmart Inc. (WMT - Free Report) posted second-quarter fiscal 2019 results. The company has long been gaining from its constant efforts to combat the growing dominance of Amazon (AMZN - Free Report) .

Quarter in Detail

Walmart’s adjusted earnings of $1.29 per share came ahead of the Zacks Consensus Estimate of $1.21 and surged 19.4% year over year. We believe that enhanced sales and a fall in interest expenses fueled bottom-line growth. Including one-time items, Walmart reported a loss of 29 cents per share against earnings of 96 cents recorded in the year-ago period.

Walmart Inc. Price, Consensus and EPS Surprise
 

Walmart Inc. Price, Consensus and EPS Surprise | Walmart Inc. Quote

Total revenues advanced 3.8% to roughly $128 billion that surpassed the Zacks Consensus Estimate of nearly $125.6 billion. The upside was driven by strength at the U.S. and international businesses. On a currency-neutral basis, total revenues advanced 3.6% to $127.8 billion.

Consolidated gross profit margin contracted 17 basis points (bps) on account of price investments in various markets and elevated transportation expenses.

Consolidated operating income slipped 3.7% to approximately $5.8 billion, whereas the operating income margin contracted 40 bps to 4.5%. On a constant currency basis, operating income declined roughly 4 % to $5.7 billion.

Segment Details

Walmart U.S.: The segment recorded net sales growth of 5.2% to $82.8 billion in the quarter. U.S. comps, excluding fuel, jumped 4.5%, which marked the company’s highest growth in more than 10 years. Both traffic and ticket increased more than 2%. Further, e-commerce sales drove comps by 100 bps. Results were backed by strength in grocery, apparel and seasonal categories.

E-commerce sales in the segment jumped 40%, better than 33% rise reported in the first quarter. E-commerce sales improved on the back of enhanced online assortment with 1,100 new renowned brands and increased grocery pickup. Notably, the company now has grocery pickups in more than 1,800 locations and is on track to reach nearly 40% of U.S. households by the end of this year. Operating income at the segment climbed 1.4% to more than $4.5 billion.

Walmart International: Segment net sales went up by 4% to $29.5 billion. On a currency-neutral basis, net sales improved 3.1% to $29.2 billion with four of the largest markets registering positive comps.  Operating income at this segment slumped 19.1% to $1.3 billion. On a currency-neutral basis, operating income plunged 20.4% to $1.2 billion.

Sam’s Club: The segment, which comprises membership warehouse clubs, saw its net sales decline 0.6% to $14.8 billion. Sam’s Club comps, excluding fuel, rose 5%, highest in six years. While traffic increased 6.7%, ticket was down 1.7%. E-commerce fueled comps by nearly 110 bps. Segment operating income rose 2.8% to $0.4 billion.

Other Financial Updates

Walmart ended the quarter with cash and cash equivalents of roughly $15,840 million, long-term debt of nearly $44,958 million, long-term capital lease and financing obligations of $6,610 million and shareholders’ equity (excluding noncontrolling interest) of $71,185 million.

Year to date, Walmart generated operating cash flow of $11.1 billion and incurred capital expenditures of $4.3 billion, resulting in free cash flow of $6.8 billion. Walmart allocated $2.8 billion toward dividends and share buybacks during the quarter.

Recent Developments & View

Management remains impressed with its solid second-quarter results, as well as consumers’ favorable response to its focus on both e-commerce and stores. To this end, the company plans to continue rolling out its grocery pickup service and delivery in the United States. Also, the company recently unveiled various omnichannel efforts in China and Mexico.

With regard to its international operations, Walmart’s investment in Flipkart is expected to conclude soon, as the Competition Commission of India issued an unconditional grant for the same on Aug 8. Moreover, the company closed the sale of 80% stake in Walmart Brazil on Aug 1. The company’s plans to combine its U.K. grocery unit, Asda with J Sainsbury is awaiting regulatory approval.

All said, the company now expects consolidated constant currency net sales to grow 2% in fiscal 2019, which includes a negative impact of about 180 bps from the sale of major stake in Walmart Brazil, divestiture of Suburbia, wind-down of first-party Brazil e-commerce, and closure of Sam’s Clubs and various tobacco related actions. Earlier consolidated constant currency net sales were expected to rise 1.5-2%.

U.S. comps are anticipated to grow roughly 3% in fiscal 2019, up from at least 2% growth expected earlier. Sam’s Club comps are likely to rise 3%, with tobacco hurting the same by about 200 bps. Walmart’s U.S. e-commerce net sales are expected to surge 40%. International sales are expected to climb 0.7% including 330 bps adverse impact from the sale of major stake in Walmart Brazil, divestiture of Suburbia and wind-down of first-party Brazil e-commerce.

Consolidated adjusted operating margin growth is expected to range between flat and slight dip. Finally, adjusted earnings are expected in the range of $4.90-$5.05 per share, up from $4.75-$5.00 guided earlier.

 



This Zacks Rank #4 (Sell) stock lost 12.3% in six months compared with the industry’s decline of 9%.

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