I'm impressed by Walmart's (WMT) first quarter earnings results. There will no doubt be a great deal of deliberation amongst analysts this week over competition, the effects of tariffs, and the general potential for an economic slowdown, but all in all Walmart did well at growing key sales areas in the first quarter.
Total revenues increased 1% to $123.9 billion. One percent might not seem like much, but on Walmart's scale, a $1.2 billion increase in revenue is nothing to scoff at. On a constant currency basis, revenues increased 2.5%. Total United States comparable store sales increased 3.4%, with operating income increased 5.5%. Perhaps the area that will garner the most attention this week was their U.S. online sales. E-Commerce sales in the United States increased 37% in the first quarter. Walmart credited much of the growth to the strength of online grocery.
I've long been a fan of the company's introduction of "order online/pickup at the store" grocery initiative. It serves as a double incentive to increase orders, while drawing consumers to their store locations. Home Depot (HD) has deployed a similar strategy in the past to great success. Think about it. How often do you make a list of things you need at the store, get to the store, and then end up buying more than what you intended? I feel confident that the pickup initiative will aid in increasing store traffic as well.
Sam's club was a weaker area of the business, with comp sales increasing 0.3%. Walmart noted that tobacco sales were an area of weakness for Sam's club. On a brighter note, e-Commerce sales increased 28%.
On the surface, Walmart looked weaker internationally. International net sales decreased 4.9%, but it was mainly due to currency fluctuations. On a constant currency basis, international sales increased 1.2% to $30.6 billion. Getting down to operating income, it gets more complicated. International operating income decreased 37.5% on a constant currency basis. Thanks to the addition of Flipkart, total operating income suffered a decline of 4.1%, and 3% on constant currency.
Net income increased attributable to Walmart 80% year over year jump to $3.84 billion. On a per share basis, those earnings break down to $1.33 per diluted share. That marks an 84.7% increase compared to last year's earnings of $0.72 per share.
To play devil's advocate, Walmart does have some increasing liabilities. They're taking on a great deal of debt competing against Amazon (AMZN) online, along with their other initiatives. Long term debt increased to over $47 billion vs. $29.47 billion a year ago. The increases in debt put a light damper on total equity despite the increase in cash on hand to $9.25 billion.
Consequently, interest expenses increased in the quarter. Interest expenses on debt increased 34.6% to $588 million, while total net interest expenses increased 28.3% to $625 million.
Nonetheless the initiatives seem to be working. It's pretty hard to speak negatively about the best comp sales in nine years. Amazon certainly cannot claim that kind of e-Commerce growth rate. Granted they have a much bigger online presence. I predicted last week that investors would likely react more to sales results than earnings. Ironically, revenues actually came in under estimates of $125.03 billion and the stock was up over 3% at the time of this writing. Right now, I think it's tough to gauge the numbers too specifically. The company is putting a lot of money into driving its online growth, as well as store improvements. To that end, we're witnessing an investment period. The strong comp sales obviously indicate some success of that investment, but I can't help but feel that a lot of the payout is still down the road. Operating margins are still taking on the grind from the acquisition of Flipkart, and it will take some time to figure out how that asset plays into the equation.
Overall, I think WMT serves as a good name to play. It offers e-Commerce exposure without the massive premium that Amazon demands. Considering the growth rates, it's actually stealing market share. Analyst estimates have Walmart finishing the fiscal year with $4.76 in earnings per share. That would have the stock currently trading at around 21.7x forward earnings. It's certainly a much better deal than trying to grab on to Amazon shares.