Key Takeaways From Wal-Mart’s Earnings

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Wal-Mart (NYSE:WMT) reported mixed third quarter results on Thursday, as its bottom line beat analyst expectations but revenues missed. On a reported basis, the company’s revenue increased 0.7% year over year (y-o-y) to $118.2 billion, driven by growth in the domestic market due to its marketplace offerings and benefits from Jet.com, partially offset by the negative impact of food deflation and foreign currency fluctuations. In addition, the retailing giant’s consolidated net income declined 8% y-0-y to $3 billion. Wal-Mart also posted adjusted earnings per share of $0.98, down 5% y-o-y but well within the company’s guidance. 

Wal-Mart’s U.S. same store sales grew 1.2% but fell short of the 1.3% forecast. However, Wal-Mart’s U.S. segment saw progress in e-commerce sales, while e-commerce contributed 50 basis points (bps) to the company’s U.S. comparable sales growth, which was its largest contribution to date. On a constant currency basis, global e-commerce sales and gross merchandise volume (GMV) increased 20.6% y-o-y and 16.8% y-o-y, respectively. [1]

Wal-Mart’s consolidated gross profit margin increased 34 bps, but the company’s selling, general and administrative expenses (SG&A) increased 5.5% y-o-y due to ongoing investments in people and technology. Wal-Mart also generated $12.2 billion of free cash flow in the first nine months of the year, up 80% y-o-y.

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Wal-Mart U.S. Comparable Sales Continue To Grow

Wal-Mart U.S same store sales grew 1.2% in third quarter, driven by a 0.7% increase in traffic and 0.5% increase in average ticket. However its comparable sales inventory was down approximately 6% and in-stock levels were up. Wal-Mart’s third straight quarter of positive comparable sales in fiscal 2017 shows that the company’s investments in e-commerce and marketing are paying off. However its comparable sales, traffic and neigbouhood store growth was slower than in the same quarter last year.
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Future Outlook

Wal-Mart raised its full year adjusted EPS guidance to range between $4.20 to $4.35 from $4.15 to $4.35 previously, and expressed confidence going into the holiday season. It now expects its full year effective tax rate to range between 31% and 32%. For the upcoming quarter, the company expects comparable sales growth for Wal-Mart U.S. and Sam’s club (ex. fuel) to range between 1.0% to 1.5%. Wal-Mart also expects adjusted earnings per share in the range of $1.18 to $1.33 in the fourth quarter.

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Please refer to our complete analysis for Wal-Mart  

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Notes:
  1. Wal-Mart Stores’ (WMT) CEO Doug McMillon on Q3 2017 Results – Earnings Call Transcript, Seeking Alpha, Nov 17 2016 []