Wal-Mart (WMT 102.53, +2.55, +2.6%) is trading higher after the company reported strong first quarter results this morning.
The company missed net revenue expectations largely due to foreign exchange headwinds. Net revenue grew 1.1%, or 2.6% in constant currency.
More importantly, Wal-Mart US comparable store sales increased 3.4% on top of 2.1% growth last year, essentially in-line with the +3.3% expectation. That marks the best first quarter growth in nine years.
E-commerce sales grew 37% on top of 33% growth last year but slowed sequentially. The company said it is making progress improving contribution profit in the online segment.
In February, Wal-Mart said US comp sales would grow 2.5-3.0% and e-commerce sales would grow 35% this year. Top-line growth is expected to slow for both segments this year as comparisons become more difficult. Management did not update its fiscal 2020 outlook today. Wal-Mart is increasingly going head-to-head with Amazon (AMZN). The company is squarely focused on its transformation into a digital enterprise by making it easier for customers to shop with Wal-Mart, including in-store grocery pickup and same day grocery delivery. Earlier this week, Wal-Mart announced that it is rolling out next-day delivery for over 150,00 items (with a $35 minimum) this year. Amazon made a similar announcement for Prime subscribers last month.
The company said gross margin exceeded expectations, growing six basis points yr/yr due to a better merchandise mix in stores and online and reduced transportation cost pressure. Wal-Mart will remain the low-cost supplier for consumers.
Operating income was better than expected, down 4%, or 3% in constant currency, but up 5.5% in the Wal-Mart US segment. Dilution from Indian eCommerce unit Flipkark will continue to weigh on earnings near term.
Growth in the international segment is lagging but comp sales were positive in three of the company's four largest markets.
For now, investors do not seem concerned about the prospect of additional tariffs on Chinese goods next month.
The world's largest retailer has a near $300 bln market cap and trades at almost 22x EPS, a premium to most retailers. The multiple is closer to 20x, excluding the impact of Flipkart dilution. Smaller competitor, Target (TGT) trades at ~12x EPS but wholesaler Costco (COST) trades at 30x EPS.
Overall, Wal-Mart continues to execute well with its digital initiatives while the strong US consumer continues to provide a nice tailwind, making Wal-Mart a safe investment for the time being.