(WMT 99.35, +9.13, +10.11%)
surged 10% premarket after the core US business reported its best sales growth
in more than a decade and the growth has been maintained so far.
Second quarter Walmart US same store (comparable) sales grew 4.5% excluding fuel, which was more than 200 basis points better than expected as both traffic and ticket grew over 2%. These are ‘blow-out' results for the world's largest retailer.
The comp sales acceleration is extremely impressive coming off such a large base, though not too surprising given the strength of the US consumer. Yesterday, the Census Bureau reported retail sales for the three-months ending July grew 7% excluding automobiles.
Still, Walmart deserves credit for its omnichannel and digital priorities that are delivering results. Walmart U.S. eCommerce sales accelerated 700 basis points to 40% growth.
Sam's Club comp sales were up 6.5%, excluding fuel and a 150 basis point negative impact from tobacco.
International had a good quarter with positive comp sales in their four largest markets of Mexico, U.K., Canada, and China, including a more than 5 percent comp increase at Walmex.
Walmart US fresh food sales were strong and led to the best grocery comp in 9 years (up mid-single digits, taking market share). General merchandise sales also recovered from the weather-related headwinds experienced in April, and sales momentum continued throughout the second quarter, especially in seasonal and apparel categories.
Adjusted EPS grew 19% to $1.29. Gross profit margin declined 17 basis points primarily due to price investments in certain markets and increased transportation costs but that was offset by 19 basis point operating expense leverage.
Walmart also raised its fiscal 2019 (ending January) outlook. The company raised constant currency net sales guidance to about 2% growth from +1.5-2.0% despite divesting Brazil businesses and Suburbia. Walmart US comps were raised to ~3% growth from at least 2% growth; Sam's Club comps were raised to ~3% from -1% to flat with a 200 bps negative impact from tobacco (down from a previously projected 400 bps headwind). Operating margin was raised to 4.4% from 4.3-4.4% excluding foreign exchange impacts.
Adjusted EPS guidance was raised to $4.90-5.05 from $4.75-5.00 excluding Walmart Brazil, JD.com and Flipkart investments.
The stock is trading at a six-month high premarket right near par ($100/share). Walmart's strong results may be able to revive the retail rally. The SPDR S&P Retail ETF (XRT) broke out to a new all-time high on Tuesday despite Home Depot (HD) selling off on strong results. The breakout in the XRT failed yesterday after Macy's (M) succumbed to significant profit taking despite strong results.
With a ~$295 bln market cap, Walmart is now trading at ~20x EPS, which is above the high-teens retail average and a sizeable premium to Kroger (KR) and Target (TGT) but still a notable discount to Costco (COST).
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