In a week of volatility, Walmart (WMT) makes us feel better
In a week when the market is panicking over yield curves and trade disputes, Walmart is too busy reporting earnings beats. For its second quarter of fiscal 2020, the retail behemoth reported strong sales growth above expectations, and gave us new guidance that suggests the king of retail isn't too worried about a recession.
Revenues of $130.4 billion beat expectations of $130.08 billion. The growth represented a 1.8% increase year-over-year. Operating income took a slight hit, declining 2.9% to $5.58 billion.
Tighter operating income has been a trend this year, as Walmart works to drive sales and revamp its stores with new initiatives like its grocery pickup services. For the first six months of the year, operating income is down 3.4% to $10.53 billion. But the inclusion of Flipkart on it reporting is much to blame for the weaker operating income.
Net income of $3.61 billion is a stark improvement from last year's loss of $861 million. On a per share basis, Walmart's net income broke down to $1.26 per diluted share. Adjusted earnings of $1.27 were better than expectations of $1.22.
The company also exceeded expectations for sales. Same-store sales grew by 2.8%, outpacing estimates of 2.5%. U.S. comp sales alone increased by 7.3% on a two year stacked basis. Walmart noted that the U.S. operating segment had a 4% improvement in operating income.
I'm sure most investors were looking to see online growth from the retail king. The company did not disappoint on that front. U.S. e-commerce sales increased 37%. Walmart noted that these online sales included strong growth in online groceries.
While Sam's Club comp sales increased 1.2%, international sales were a bit weak. Walmart International net sales declined by 1.1%. The weakness was due to poor performance in the U.K. and Canada.
Looking forward, Walmart has updated its full year fiscal 2020 guidance. The retailer now expects sales growth in the U.S. to be around 3%, while adjusted earnings are expected to increase or decrease slightly for the full year. That might not sound like an improvement, but originally the retailer had been expecting earnings to decline in the single digits, thanks to the addition of Flipkart.
The stock market as a whole is certainly not inspiring confidence this week. China's new threat of retaliatory measures to U.S. tariffs won't help the situation. Yes, the current tariff situation is certainly a problem in terms of potentially higher costs for retailers. That said, it wouldn't be a problem that only hit Walmart. Most retailers will suffer from higher duties on goods they purchase from overseas. Considering Walmart's pricing power, I'd consider them one of the names more equipped to deal with it.
Over the long term, WMT has been a great stock for the portfolio. I don't see it losing out, even in a recession. If you look back to 2009, WMT did suffer with the broader market for a little bit, but not nearly the same as many other names.
Sure, we are seeing inverted-yield curves, and slowing spots in the economy, but what's one thing that consumers need to buy even if times get tight? The answer is groceries. You're still going to buy food. You're still going to buy essentials like garbage bags. You're still going to buy toiletries. Unless we find ourselves in a second Great Depression, Walmart offers low-priced items that everyone needs. To that end, I wouldn't be getting too bent out of shape about owning the stock. If anything, the fact that Walmart showed such an increase in U.S. sales should be a comforting example that consumer spending was strong in the second quarter.