How Wal-Mart Beat Q2 Earnings Estimates

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Wal-Mart Stores Inc. (NYSE: WMT) reported second-fiscal quarter 2017 results before markets opened Thursday. The retailing giant posted diluted earnings per share (EPS) of $1.21 on total revenues of $120.85 billion, which includes membership fees in Sam’s Club. In the same period a year ago, Wal-Mart reported EPS of $1.08 on revenues of $120.23 billion. Second-quarter results also compare to the Thomson Reuters consensus estimates for EPS of $1.02 and $120.16 billion in revenue.

Quarterly revenues include $535 million that Wal-Mart received when it sold Chinese e-commerce business Yihaodian to JD.com. Excluding the gain on the Yihaodian sale, Wal-Mart’s EPS for the quarter falls to $1.07.

U.S. first-quarter same-store sales, both including and excluding fuel sales, rose 1.6% at the company’s supercenter and discount stores. Same-store sales in the company’s Sam’s Club stores were up 0.6% excluding fuel and down 1.2% including fuel sales. Total U.S. net sales rose 3.1% for the quarter.

Operating income rose 1.6% year over year in the second quarter, including the gain on the sale of Yihaodian. Excluding that sale, operating income fell 7.2%. The company attributed the decline to “investments in people and technology” and currency fluctuations. Not including currency fluctuations, operating income rose 4.2%.

Wal-Mart guided third-quarter fiscal 2017 EPS in a range of $0.90 to $1.00 and U.S. same-store sales for the quarter up 1.0% to 1.5%. The company raised its full-year EPS estimate from a prior range of $4.00 to $4.30 to a new range of $4.15 to $4.35. Guidance assumes that currency exchange rates remain where they are now and includes dilution of $0.05 per share related to the company’s acquisition of Jet.com and excludes a non-cash gain of $0.14 per share related to the sale of Yihaodian.

Consensus estimates call for third-quarter EPS of $0.93 and revenues of $118.45 billion. For the 2017 fiscal year, analysts are looking for EPS of $4.27 and sales of $486.48 billion.

During the second quarter, Wal-Mart repurchased $2.12 billion in its common stock (about 30 million shares) and has $12.7 billion remaining in its $20 billion authorized buyback program. The company also paid $1.56 billion in dividends. Year over year, share repurchases were up 111% and dividend payments were down 1.1%.

Wal-Mart CEO Doug McMillon said:

We’re pleased with the positive momentum in our business. Our strategy in the U.S. is working as we delivered an eighth consecutive quarter of positive comps, and international also performed well. We remain focused on building e-commerce capabilities globally and executing our omni-channel plan, as evidenced by our recent alliance with JD.com in China and agreement to acquire Jet.com in the U.S. Walmart is uniquely positioned to provide customers with a seamless shopping experience where we save them time and money.

Excluding the one-time gain from the sale of Yihaodian, quarterly revenues were still above the consensus estimate, as were EPS. Operating income has dropped more than 7% in each of the first two quarters of the company’s 2017 fiscal year, and it remains to be seen if the investments that Wal-Mart is making in higher wages will pay off for stockholders.

Wal-Mart’s shares traded up nearly 1.5% in premarket trading Thursday morning, at $74.00, in a 52-week range of $56.30 to $74.80. Thomson Reuters had a consensus 12-month price target of $70.19 before the results were announced. The high target is $85.00.