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How Walmart just proved there is no recession looming

Brian Sozzi
Editor-at-Large

Those on Wall Street sounding the alarm of a looming U.S. recession should dig into Walmart’s latest earnings report as it just doesn’t look like negative GDP growth is on the horizon.

The world’s largest retailer said Thursday that third quarter earnings came in at $1.08 a share adjusted, beating analyst forecasts for $1.01. Total revenue clocked in at $124.89 billion versus forecasts for $125.55 billion. Walmart lifted its full year U.S. same-store sales guidance to “at least” 3% from “about” 3% previously. Earnings are now seen in a range of $4.75 to $4.85 a share compared to $4.65 to $4.80.

Walmart shares popped about 1.5% on the news.

But several numbers within Walmart’s report suggest the U.S. consumer is in find standing ahead of the critical holiday shopping season. That shouldn’t be a surprise seeing as U.S. unemployment is hovering near record lows, consumer confidence is around an 18-month high and hourly wages are on the rise.

Here’s where Walmart put recession worries to rest:

  • Walmart U.S. eCommerce sales rose 43% from the prior year. The gain was a quicker pace than the second quarter’s growth rate of 40%.
  • Walmart saw strong sales gains at its two key U.S. businesses. Walmart’s U.S. same-store sales, a key retail industry metric, rose 3.4%. Sam’s Club, which tends to skew toward a higher income customer, notched a 3.2% same-store sales increase. The division’s eCommerce sales gained 32%.
  • Customer traffic and average ticket increased 1.2% and 2.2% at Walmart U.S., respectively. It’s often very positive to see both of these metrics increase at the same time for a retailer, especially one of Walmart’s size. Traffic spiked 6.2% at Sam’s Club.
Walmart workers organise products for Christmas season at a Walmart store in Teterboro, New Jersey, U.S., October 26, 2016. REUTERS/Eduardo Munoz

What may leave Walmart bulls concerned though are pressured profit margins. Walmart’s gross profit margin dropped to 24.08% from 25.04% a year ago amid rising transportation and labor costs. Expense cuts, benefits of the Trump administration’s corporate tax cut and share repurchases helped cushion the profit margin hit for Walmart.

But hey, at least there is unlikely a recession coming…says Walmart.

Brian Sozzi is an editor-at-large at Yahoo Finance. Follow him on Twitter @BrianSozzi

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