The world's largest retailer, Walmart (WMT 69.37), checked in with its fiscal fourth quarter results this morning and they were better than feared, as was the company's outlook. Shares of WMT are up 3.6% in pre-market trading.
The concern ahead of Walmart's report was that it might not live up to expectations given the inroads Amazon.com (AMZN) has made in taking market share away from other retailers. Walmart demonstrated, however, that it is still a go-to destination for many price-conscious consumers.
The best reflection of matters was Walmart's comparable store sales performance, which exceeded the company's own guidance for both Walmart U.S. and Sam's Club.
Specifically, Walmart U.S. comp sales increased 1.8% while Sam's Club comps, excluding fuel, increased 2.4%. Walmart's prior guidance called for comparable sales to increase in the range of 1.0% to 1.5% for both units.
The encouraging aspect of the comparable store increases at both units is that they were driven by increases in traffic and ticket. In other words, consumer visits were up and consumers were spending more at Walmart and Sam's Club. That was a decidedly different experience compared to many mall-based retailers, which felt the pinch of reduced traffic and a shift in consumer buying preferences.
For Walmart, the increased activity translated into a 0.8% increase in net sales to $129.8 billion. That growth was aided by a 29% increase in e-commerce sales at Walmart U.S., which helped offset a 5.1% decline in Walmart international sales.
The total top-line growth might not seem all that robust, yet that's a function of the very large base against which Walmart is comping. To wit, Walmart's fourth quarter sales nearly matched Amazon.com's sales for all of 2016.
The investment Walmart has made in its stores, its employees, and its e-commerce efforts appears to be paying off as a traffic driver, yet it continues to compress the retailer's profitability.
Walmart's adjusted earnings of $1.30 per diluted share for the fourth quarter was slightly ahead of analysts' average expectation but down from $1.49 on a comparable basis in the same period a year ago. Its operating income declined 6.6% to $6.21 billion as operating, selling, general and administrative expenses increased at a much higher rate (+3.7%) than its net sales.
This is a short-term trade-off Walmart is willing to make, however, to ensure it is able to maintain a leading industry position for the long term.
Walmart's guidance has had a bit of a smoothing effect on shareholder sentiment since it was largely in-line with expectations, if not a bit better than expected.
The retailers' first quarter outlook calls for earnings per share in the range of $0.90 to $1.00, Walmart U.S. comps to be up 1.0% to 1.5%, and Sam's Club comp, excluding fuel, to increase approximately 1.0%.
Fiscal year 2018 EPS is anticipated to range from $4.20 to $4.40, which is up from the range of $4.15 to $4.35 provided last October. This outlook, Walmart said, assumes currency exchange rates remain at current levels and its full-year effective tax rate will be around 32%.
Separately, Walmart announced a 2% increase in its annual dividend to $2.04 per share.