Key Takeaways From Wal-Mart’s Q1 Results
Wal-Mart (NYSE:WMT) reported better-than-expected fiscal first quarter results on Thursday, May 17, as both its EPS and revenues came in ahead of market expectations. Below we discuss some key takeaways from Wal-Mart’s earnings report and Q2 outlook using our interactive platform.
On a reported basis, the company’s revenue increased 4% year over year (y-o-y) to $123 billion, driven by growth in the domestic market due to its marketplace offerings. Wal-Mart also posted diluted earnings per share of $0.72, down 28% y-o-y, largely due to the company’s e-commerce investments putting pressure on its bottom line. This pressure was in large part due to accounting standards which required the company to report an unrealized loss related to a decline in JD.com’s stock during the quarter, as Wal-Mart holds a significant position in the Chinese e-commerce giant. However, on an adjusted basis, Wal-Mart’s earnings per share grew 14% y-o-y to $1.14.
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Wal-Mart U.S. Continues To Grow
Wal-Mart U.S. delivered a strong top line performance, with comparable sales of 2.1%, driven by a 0.8% increase in customer traffic in Q1. Overall, e-commerce contributed approximately 100 basis points to the segment’s comparable sales growth in the first quarter. The segment’s gross profit rate declined by 23 bps due to price investments and higher transportation expenses, primarily related to fuel costs and third party trucking rate pressures.
In the company’s other segments, Wal-Mart’s international sales grew 12% y-o-y to $30 billion during the quarter, led by strength at Walmex. Also, Sam’s Club comparable sales grew 3.8% y-o-y (ex. fuel) in the quarter, led by solid traffic.
E-Commerce: Strong Growth Driver
Wal-Mart’s e-commerce operations include 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 increased 33% in the quarter, which was above consensus estimates of around 30%. The majority of this growth was organic through Walmart.com, including online grocery (which is growing quickly) and ship-to-home business. It should also be noted that the e-commerce growth in Q1 accelerated from the 23% seen in Q4.
Future Outlook
Wal-Mart expects its investment in Flipkart to negatively impact its full year fiscal year 2019 EPS by approximately $0.25 to $0.30 – if the transaction closes at the end of the second quarter. In Q2, we expect the company to report close to $126 billion, with growth across operating segments. In addition, we also expect the company to post diluted earnings per share of around $0.80 in the second quarter.
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