Walmart Shows It Can Stand Up to Amazon

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Walmart Inc. (NYSE: WMT) reported second-quarter 2019 results before markets opened Thursday morning. The retailing giant posted adjusted diluted earnings per share (EPS) of $1.29 on net sales of $127.06 billion, excluding membership fees in Sam’s Club. In the same period a year ago, Walmart reported EPS of $1.08 on sales of $121.95 billion. Second-quarter results also compare to consensus estimates for EPS of $1.22 and $125.97 billion in sales.

Walmart lifted adjusted EPS guidance from a prior range of $4.75 to $5.00 to a new range of $4.90 to $5.05. On a GAAP basis, EPS guidance dropped from the prior range of $4.75 to $5.00 to a new range of $2.90 to $3.05. The adjustments include the sale of a majority stake in the company’s Brazil operations, unrealized losses on its investment in JD.com, and tax reform adjustments that lift its effective tax rate from a prior range of 24% to 26% to a new range of 31% to 33%. The effective tax rate remains 24% to 26% on adjusted EPS.

U.S. second-quarter same-store sales rose 4.5% at the company’s supercenter and discount stores, and comparable-store traffic rose 2.2%. Same-store sales in the company’s Sam’s Club stores were up 5% excluding fuel sales and up 7.7% including fuel sales. Sam’s Club total net sales, including fuel, dipped 0.6% for the quarter. FactSet had forecast U.S. same-store sales growth of 4%.

Walmart also raised its same-store sales estimate from “at least 2%” to “around 3%,” excluding fuel sales. Net sales, in constant currency, is now forecast at “about 2%,” up from 1.5% to 2%. E-commerce sales are forecast to rise by 40%.

Sam’s Club membership fees and other income totaled $969 million, a decrease of 31% year over year for the quarter.

Consolidated operating income fell by 3.7% year over year in the second quarter. U.S. operating income rose by 0.1% for the quarter while the company’s international segment saw a quarterly drop of 19.1%. Operating income at Sam’s Club stores increased by 2.8% in the quarter.

Walmart reported U.S. e-commerce growth of approximately 100 basis points (up 30 basis points year over year). In Walmart’s international division, sales rose 4% and operating income dropped by 20.4% in constant currency.

Consensus estimates call for full-year EPS of $4.81 and sales of $514.32 billion. For the third fiscal quarter, Walmart is expected to post EPS of $1.04 on sales of $125.6 billion.

Walmart CEO Doug McMillon said:

[W]e had a great quarter with strong results and momentum across the business. We’re pleased with how customers are responding to the way we’re leveraging stores and eCommerce to make shopping faster and more convenient. … Customers have choices and we’re making it easier than ever for them to choose Walmart.

Free cash flow for the first half of the 2019 fiscal year totaled $6.8 billion, down from $6.9 billion in the first half of last year. Net cash from operations was down from $11.4 billion in the first half of fiscal 2018 to $11.1 billion.

The company paid $1.5 billion in dividends in the second quarter and repurchased $1.3 billion in stock, a 42% decrease in share buybacks compared with the same quarter a year ago.

Walmart’s shares soared 11% in premarket trading Thursday to $100.10, above the 52-week range of $77.50 to $109.98. Shares closed at $90.22 on Wednesday. The consensus 12-month price target was $94.44 before the results were announced, and the high target is $108.00.