Wal-Mart Beats Q2 Results On Increased Domestic Foot Traffic, Online Growth
Wal-Mart (NYSE:WMT) reported solid second quarter results on Thursday, with both its top line and bottom line beating analyst expectations. The company’s revenue increased 0.5% year over year (y-o-y) to $120.9 billion, which was $740 million more than estimates. The retail giant’s consolidated net income increased 9% y-0-y to $3.8 billion, despite margin pressure due to higher labor costs. Wal-Mart posted adjusted earnings of $1.07 per share for the second quarter and was above the top end of its own guidance.
Wal-Mart’s international business is still seeing the effects of a much stronger U.S. dollar, and the company could witness better performance if the dollar weakens. With macroeconomic uncertainty looming over the spending environment, Wal-Mart’s position as a discount superstore should provide it an advantage going forward.
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Robust Comparable Sales Growth Drives Top Line
Wal-Mart has outperformed in the retail industry with two consecutive quarters (Q1 & Q2 FY 2017) of positive comparable sales growth. The company exceeded its U.S. comparable sales guidance and delivered comparable sales growth of 1.6%, driven by a traffic increase of 1.2% and a 0.4% increase in average ticket.
Most other retailers have reported flat or declining traffic in recent quarters due to the shift in consumer preferences to online shopping and increased spending on experiences rather than physical goods. But Wal-Mart was able to defy this trend in the second quarter, primarily due to its value reputation. Going forward, we can expect Wal-Mart to outperform its rivals in traffic growth as customers are more sensitive to prices amid the prevailing economic uncertainty in the U.S.
E-commerce Exhibits Strong Momentum
On a constant currency basis, Wal-Mart’s e-commerce sales in the second quarter were up 11.8% over last year . The company made some strategic moves to position itself in the e-commerce market in the second quarter, including introducing online grocery, ShippingPass, rolling out Wal-Mart Pay in stores and expanding its reach in China through its alliance with JD.com. In addition, Wal-Mart also recently announced its agreement to acquire Jet.com, wherein Wal-Mart intends to sell its cheap goods online through Jet’s efficient network.
Raised Full Year Guidance For Earnings
Wal-Mart has performed well in the first half of fiscal 2017 and as a result, raised its full year adjusted EPS guidance to range between $4.15 to $4.35 from $4.00 to $4.30 previously. It now expects its full year effective tax rate to be at the low end of its earlier guidance of 31.5% to 33.5%. For the upcoming quarter, the company expects comparable sales growth for Wal-Mart U.S. to range between 1% to 1.5% and comparable sales growth for Sam’s club (ex. fuel) to be slightly positive. Wal-Mart also expects adjusted earnings per share in the range of $0.90 to $1.00 in the third quarter.
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