world's largest retailer reported solid first quarter results this morning.
Wal-Mart (WMT 85.41, -0.72, -0.84%)
reported total revenue, on a constant currency basis, increased ~2.7% to over
$120 bln. Adjusted EPS grew 14% to $1.14, just above estimates. Each business
segment delivered solid sales growth.
Walmart U.S. continues to perform well with comp sales growth, excluding fuel, of 2.1%, although that slightly missed estimates. Comp sales were trending higher through early April, but general merchandise sales and traffic were somewhat negatively impacted by unseasonably cool weather in April. The business picked up again as the weather normalized.
Gross margin rate declined 23 basis points primarily due to price investments and higher transportation expenses as a result of higher fuel costs and third-party transportation rate pressures.
Customer experience scores continue to improve as management has lowered prices and taken steps to make shopping easier and more enjoyable. Wal-Mart is using technology in more ways to simplify work for associates so they can better serve customers. This is also helping with inventory flow and expense management, offsetting higher wages. By the end of the year, 2,100 locations will have online grocery pickup and 800 will have delivery (40% of the US population).
eCommerce sales accelerated in the first quarter with 33% growth (up from 23% in Q4), and management continues to expect eCommernce sales growth of ~40% for the year. Sam's Club comps improved 5.2%, excluding fuel and a 140 basis point decrease for tobacco.
Outside of the U.S., eight of eleven markets posted positive comp sales, including their four largest markets of Mexico, U.K., China, and Canada. Wal-Mart is pleased with the response of their colleagues in the U.K. following the proposed merger of Asda with Sainsbury's.
Wal-Mart is especially excited about the acquisition of India's Flipkart. eCommerce in India is growing rapidly, and they expect it to grow at four times the rate of overall retail. Flipkart is already capturing a large portion of this growth and is well positioned to accelerate into the future. Wal-Mart reaffirmed the near term dilutive impact of the deal.
Wal-Mart said it will update guidance when it reports second quarter guidance in August.
Despite the slight miss on same store sales, 2.1% growth is quite strong on a $75 bln base. Consumer spending is strong in the U.S. and Wal-Mart is taking encouraging steps to bolster its online and international presence in the war against Amazon.
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