Key Takeaways From Wal-Mart’s Q1 Earnings

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Wal-Mart (NYSE:WMT) reported mixed fiscal first quarter results on Thursday, as its bottom line beat analyst expectations but revenue missed. On a reported basis, the company’s revenue increased 1.4% year over year (y-o-y) to $117.5 billion, driven by growth in the domestic market due to its marketplace offerings, partially offset by foreign currency fluctuations. The retailer’s consolidated net income declined marginally to $3 billion in the first quarter. Wal-Mart also posted earnings per share of $1.00, up 2% y-o-y, which was near the upper end of its guidance range.

Wal-Mart’s e-commerce sales grew an impressive 63% y-o-y, a significant improvement from 29% in the fourth quarter of fiscal 2017. In terms of the company’s segments, Wal-Mart U.S. delivered a strong top line performance with comparable sales of 1.4%, which exceeded the consensus estimates of 1.3%. However, the retailer’s international sales were down 4% y-o-y to $27 billion during the quarter, driven by sales headwinds from the divestment of businesses – Yihaodian in China and Suburbia in Mexico. In addition, Sam’s Club comparable sales grew 1.6% y-o-y (ex. fuel) in the quarter.

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On the cost side, Wal-Mart’s total operating expenses increased in the quarter, primarily due to ongoing investments in e-commerce and technology. For the first quarter, Wal-Mart generated $5.3 billion in operating cash flow and $3.4 billion of free cash flow, which declined 15% y-o-y. This decline was primarily due to an increase in incentive payments, as well as a comparison against significant working capital changes last year.

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Wal-Mart U.S. Continues To Grow

In Wal-Mart U.S., strong comparable sales growth of 1.4% was driven by a 1.5% increase in customer traffic. However, the average ticket size declined slightly. Overall, all store formats had positive comparable sales and e-commerce contributed approximately 80 basis points to the segment in the first quarter. Additionally, Wal-Mart also reported positive comparable growth in groceries, due in part to a lack of market deflation in food, excluding price investments. In addition, the segment’s operating income increased 0.9% y-o-y during the quarter.

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E-Commerce : Strong Growth Driver

Wal-Mart’s e-commerce division includes all web-initiated transactions, including those through Walmart.com such as ship-to-home, ship-to-store, pick up today, and online grocery, as well as transactions through Jet.com. Globally, on a constant currency basis, the company’s e-commerce sales and GMV increased 63% and 69% (including acquisitions), respectively, in this quarter. The majority of this growth was organic through Walmart.com, and was likely boosted by the company’s two-day delivery initiatives. From a marketplace perspective, the company covers more than 35 million SKUs to date.

Future Outlook

For the upcoming quarter, Wal-Mart expects comparable sales growth for Wal-Mart U.S. to range between 1.5% to 2.0%, and Sam’s Club (ex. fuel) comparable sales to range between 1.0% to 1.5%. Additionally, the company also expects earnings per share in the range of $1.00 to $1.08 in the second quarter.

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Please refer to our complete analysis for Wal-Mart  

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