Walmart (WMT) has reported strong earnings and called out the strength of the U.S. consumer at a key moment on Thursday morning.
Shares of the "Bully of Bentonville" were bumped nearly 7% higher in pre-market hours, buoyed by a top and bottom line beat on earnings and raised guidance even amid a myriad of macro pressures. The results have also rejuvenated retail indices that had been battered by Macy's (M) warnings on Wednesday.
The company doing $1b per day US matters more than the dying department store, in terms of economic growth of the US— Jeff Macke (@JeffMacke) August 15, 2019
For the three months ending in July, earnings per share came in at $1.27, down 2 cents from the same period last year but 5 cents ahead of the Street consensus forecast, while top line numbers ticked revenues up 1.8% to $130.4 billion, again topping analysts' forecasts of a $129.2 billion.
"Customers are responding to the improvements we're making, the productivity loop is working, and we're gaining market share," CEO Doug McMillon said. "We're on track to exceed our original earnings expectations for the year."
U.S. retail sales have risen at the company for an unparalleled 20 consecutive quarters, confirming the retailer's ability to sustain sales against Amazon (AMZN) impacts and adverse macro movements.
"In our view, operating income dollar growth, market share growth, and defensiveness are key criteria for the sector in light of the current macroeconomic backdrop," Goldman Sachs analyst Kate McShane noted ahead of the quarterly report. "We note the big box retailers are best positioned based on these metrics over the next year."
The results on Thursday appear to have borne that thesis out.
Management noted that the company was able to utilize its scale to hold supplier prices in check and stem any negative impacts from the ongoing trade war as it enforces mitigation strategies it notes.
"Over the past several months, the team has been able to thoughtfully manage pricing and margins with both our customers and shareholders in mind," CFO Brett Biggs said. "We are currently reviewing the proposed List 4 tariff information that was published by the USTR on Tuesday. Our updated guidance reflects our current understanding of the timing of tariff implementation on various categories as List 4 affects a larger part of our assortment than the prior tariffs."
Comparable Sales, e-Commerce Strength
Key metrics like e-Commerce sales rose 37% as the company continues its NextDay delivery drive and comparable U.S. sales rose 2.8%, also easily outpacing estimates, marking the fifth consecutive quarter of gains with an expectation of further acceleration ahead.
Consumer is fine. A 2.8% comp by Walmart. That's fantastic for them. But that's because the job market is still strong. $WMT— Tracey Ryniec (@TraceyRyniec) August 15, 2019
"Comps accelerated sequentially on a two-year stacked basis to 7.3%, which is the strongest growth in more than 10 years," CEO McMillon noted. "We're gaining market share in key categories, including food, consumables, health & wellness and toys."
Maybe most pertinently, Walmart raised its guidance said it sees an expected to range of between a slight decrease and a slight increase for adjusted earnings per share, compared to its prior forecast of a low single-digit decline, and U.S. comparable sales growth "towards the upper end" of 2.5%.
"The U.S. consumer environment is in relatively good shape, but as we've noted, some of our international markets are softer due to challenging macroeconomic and/or political environments," CFO Biggs said. "We're continuing to monitor the ongoing tariff discussions and are hopeful that an overarching long-term agreement can be reached."
Counter-intuitive International Acceleration
While U.S. sales could be expected to carry upward as the defensive nature of much of Walmart's sales is highly sustainable and consumer retail numbers flowing through the Commerce Department should encourage optimism, the company also carried strength in international markets.
"For the quarter, nine of 10 [non-U.S.] markets posted positive comp sales," McMillon noted. "Although we face macroeconomic and political challenges in some of our markets, our teams continue to find innovative ways to serve customers and deliver solutions that make shopping easier."
In particular, Chinese same store sales increased 3%, China comp sales increased 3% as grocery sales and e-Commerce capabilities, alongside JD.com (JD) , continue to grow as it caters to the convenience-focused Chinese consumer.
"Over the last few years, we've partnered with JD.com to build flagship stores on their site and to offer fast delivery of items directly to customers through the JD Daojia app," McMillon explained. "Now, we're expanding our presence in the [Tencent (TCEHY) ] WeChat app to offer customers a new platform to use when ordering items for speedy delivery."
The retailer is also picking up profits from what is projected to be the world's largest population center in short order, that being India.
"I'm excited about the opportunity we have in India, and I'm pleased with the progress we're making in China," McMillon said. "The ecosystem we're building through [Indian eCommerce leader] Flipkart is impressive and consists of a collection of strong businesses."
While results are hampered by dilution from its $16 billion buyout of Flipkart, the future of the segment seems encouraging.
In fact, in the overall international segment only the U.K. and Canada were called out for any softness, deviating from the rest of retail's laser focus on China.
"We'll continue to leverage our scale, unique assets and financial strength to position the company competitively while driving profitability and creating shareholder value," Walmart management concluded. "I'm pleased that our first half results and continued momentum across the business position us to raise our guidance for the year."