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Walmart's (WMT) Q1 Earnings Top, Revenues Miss Estimates

Zacks Equity Research

Walmart Inc. WMT saw its fifth consecutive earnings beat when it reported first-quarter fiscal 2020 results. Though earnings declined slightly, sales improved on the back of strength in the U.S. division, wherein e-commerce sales remained strong. Shares of the company gained more than 1% during the pre-market trading session.

Notably, the company has long been gaining from its constant omnichannel efforts to combat the growing dominance of Amazon AMZN. This has helped this Zacks Rank #3 (Hold) stock gain close to 21% in the past year, compared with the industry’s growth of 19.4%.

Quarter in Detail

Walmart’s adjusted earnings came in at $1.13 per share, way ahead of the Zacks Consensus Estimate of $1.02. However, earnings dropped about 0.9% year over year. This could be accountable to lower operating income and increased net interest expenses related to the Flipkart deal. Including one-time items, Walmart reported earnings of $1.33 per share, which surged from 72 cents reported in the year-ago quarter.

Walmart Inc. Price, Consensus and EPS Surprise

Walmart Inc. Price, Consensus and EPS Surprise

Walmart Inc. price-consensus-eps-surprise-chart | Walmart Inc. Quote

Total revenues advanced 1% to $123.9 billion that fell short of the Zacks Consensus Estimate of $125.2 billion. The year-over-year upside was largely driven by strength in the U.S. business. On a currency-neutral basis, total revenues grew 2.5% to $125.8 billion.

Consolidated gross profit margin contracted 27 basis points (bps) to 23.8% on account of mix effects in the International segment and impact from Flipkart’s addition. Also, gross margin in Walmart U.S. was somewhat hurt by high transport costs and constant price investments, which were more than offset by better merchandise mix.

Consolidated operating income fell 4.1% to $4.9 billion. On a constant-currency (cc) basis, operating income declined nearly 3% to $5 billion. Results were hurt by Flipkart’s addition.

Segment Details

Walmart U.S.: The segment recorded net sales growth of 3.3% to $80.3 billion in the quarter. U.S. comps, excluding fuel, improved 3.4% backed by a 1.1% rise in transactions and 2.3% in ticket.

Further, e-commerce sales drove comps by 140 bps. E-commerce sales soared 37% on the back of strength in online grocery, along with solid sales in the Home and Fashion categories on Walmart.com. Operating income at the segment increased 5.5% to $4.1 billion.

Walmart International: Segment net sales slipped 4.9% to $28.8 billion. On a currency-neutral basis, net sales inched up 1.2% to $30.6 billion, with three out of the four largest markets registering positive comps. Operating income at this segment fell 41.7% to $0.7 billion. On a currency-neutral basis, operating income slumped 37.5% to $0.8 billion.

Sam’s Club: The segment, which comprises membership warehouse clubs, saw its net sales rise 1.5% to $13.8 billion. Sam’s Club comps, excluding fuel, rose a marginal 0.3%. Lower tobacco dented comps by nearly 270 bps. While transactions increased 4.7%, ticket was down 4.4%. E-commerce fueled comps by nearly 140 bps. Segment operating income came in at $0.5 billion, up 38.8% year over year.

Other Financial Updates

In the first quarter of fiscal 2020, Walmart generated operating cash flow of $3.6 billion and incurred capital expenditures of $2.2 billion, resulting in free cash flow of $1.4 billion. Walmart allocated $1.5 billion toward dividends and made share buybacks worth $2.1 billion during the quarter.

Recent Developments & View

Walmart continues to focus on boosting innovation and leveraging technology to drive growth. Management stated that it is on track to achieve full-year targets.

Per the previous guidance, the company anticipates consolidated net sales growth of at least 3% in fiscal 2020, including benefits from Flipkart, adverse impacts from Walmart Brazil’s deconsolidation and planned tobacco sales cut downs at Sam’s Club.

Further, management earlier projected Walmart U.S. e-commerce net sales growth of 35% year over year and Walmart International net sales increase of 5% at cc. U.S. comps are expected to advance 2.5-3% (excluding fuel). Comps at Sam’s Club are likely to grow roughly 1%, excluding fuel, and nearly 3%, excluding tobacco fuel.

Management also forecasted consolidated operating income to fall low-single digits, including Flipkart, and rise low-single digits, excluding Flipkart. Finally, earnings are envisioned to decline at a low-single-digit rate year over year, whereas the same is expected to increase in a low to mid single-digit rate, excluding Flipkart.

For the second quarter of fiscal 2020, the company expects sales to be hurt by tough year-over-year comparisons stemming from favorable weather conditions last year. Also, currency is likely to be a drag on sales, to the tune of nearly $1 billion.

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