The world’s largest retailer’s third quarter results on Thursday showed that yet again, CEO Doug McMillon continues to pull almost all the right strings operationally. And as a result, Walmart’s stock deserves a higher valuation even in a period of a surging Target that is turning its stores into an oasis for fresh food and the always aggressive price-cutting beast Amazon.
A look at Walmart’s earnings
There were a few blemishes on Walmart’s third quarter earnings release.
- Earnings smashed estimates by 7 cents.
- Walmart U.S. same-store sales rose 3.2% versus estimates for 3.1%.
- E-commerce sales spiked 41%, an acceleration from the 37% growth rate seen in the second quarter.
- Operating income grew at almost two times the pace as the segment’s sales growth, despite investments in technology, workers and lower merchandise prices.
- Same-store sales rose in all three of Walmart U.S.’s merchandise categories.
- Comparable store inventory at Walmart U.S. rose 2.7%, slower than the pace of the segment’s same-store sales increase (good for a retailer).
- Same-store sales in China rose 3.7%. E-commerce sales in the country surged 99%.
- Gross profit margins fell at Walmart U.S., Walmart International and Sam’s Club.
- Same-store sales in the U.K. and Chile under pressure.
- Same-store sales at Sam’s Club increased 0.6%, slower than the year ago rate of 3.2%.
- Walmart U.S. same-store sales growth of 3.2% was slower than the year ago rate of 3.5%.
- Walmart took a $290 million impairment charge on the Jabong.com trade name. Jabong is one of two apparel brands run by India’s Flipkart, which Walmart acquired for $16 billion in 2018.
The bottom line
Investors chose to zero in on the good. Walmart’s stock popped about 2% in early trading to $122.71.
“The key one-line takeaway, in our view, is that most important metrics, including U.S. comps and traffic, e-commerce growth, and operating profits, as well as total company profits accelerated from last quarter and, in most cases, were in fact the best of the year,” wrote Nomura Instinet retail analyst Michael Baker in the wake of Walmart’s third quarter earnings.
Sometimes stock analysis could be as simple as Baker’s one sentence.
Walmart is proving Amazon can’t kill its business, or even slow it down that much. The company is also proving that its efforts to expand its food assortments is squeezing the life out of traditional supermarkets. In other words, more market share…and probably more gains in the stock price.
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