Nov 26, 2019
Walmart jumped pre-market after the company reported Q3 EPS that beat expectations and boosted its year end earnings outlook. The largest US retailer reported Q3 adjusted EPS $1.16, stronger than the estimate of $1.09 and 8 cents higher than a year ago on revenue of $127.99 billion, slightly below the consensus est. of $128.67 billion which was a $3.1 billion or 2.5% increase from a year earlier.
Q3 adjusted EPS excluded a non-cash impairment charge of $0.06, net of tax, and an unrealized gain of $0.05, net of tax, on the company’s equity investment in JD.com.
While profit margins dipped modestly, down 36bps to 24.5%, the bottom line beat was largely due to the 5.4% drop in the effective tax rate, which declined to 24.1% in Q3.
Comp sales ex gas in the U.S. rose 3.2%, beating the 3.1% consensus growth estimate and marking the 21st straight gain.
Both the number of customers and the size of their average orders were up, fueling the growth.
There was more good news for Walmart’s online penetration as web sales in the U.S. rose 41%, beating its expected growth rate for the full year. As Bloomberg notes, "it has rapidly expanded its online grocery service and in recent weeks debuted a new offering in three cities where employees put the food right into customers’ fridges. Profitability has been a concern on the dot-com side, though, and Biggs said in prepared remarks that the company needs to sell more general merchandise, which delivers better margins than bread and bananas."
Sam’s Club, Walmart's warehouse division that accounts for 11% of its revenue, was the one weak spot as comparable sales there rose only 0.6%, just one-third the pace analysts had been expecting. A drop in tobacco sales negatively hit sales by 350 basis points, it said. The chain is still without a leader a month after Sam’s CEO John Furner was tapped to replace Greg Foran as head of Walmart’s U.S. stores division. Biggs provided no update on the search Thursday.
Commenting on the results, Walmart CEO said "Walmart U.S. business saw strong comp sales and expense leverage, and operating income grew for the sixth consecutive quarter."
Echoing the CEO, Chief Financial Officer Brett Biggs told Bloomberg that "It was a really good third quarter," adding that he’s “pleased” with how shoppers are responding so far to the rollout of early holiday deals.
Most importantly, Walmart now sees full-year adjusted earnings per share increasing "slightly" compared to last year, after saying in August either a slight decrease or slight increase was possible.
As Bloomberg notes, "this is the second time this year Walmart has upgraded its outlook. The rosier view contrasts with more downbeat expectations from retailers like Macy’s Inc., which slashed its profit guidance in August. Earlier this month, Moody’s cut its expectations for the entire U.S. retail sector, citing “intense competition in the fight for market share.” Walmart, buoyed by its market-leading grocery business and big investments to improve e-commerce, has largely avoided the turmoil that’s afflicted many mainstream merchants over the past two years."
"Walmart continues to position itself near the very top of global retail by any measure, and will continue to get stronger as time goes on, increasing the pressure on the rest of global retail," Charlie O’Shea, an analyst at Moody’s, said in a note.
Walmart shares surged as much as 3.9% in pre-market trading, putting the shares on course to open above the all-time highest closing price recorded on Wednesday. Rival Target Corp. also gained in pre-market trading.