The world's largest retailer, Walmart (WMT 103.61, +3.62, +3.62%), trades higher today
after the company reported better than expected fourth quarter results.
Adjusted EPS grew 6% as Walmart U.S. comparable store sales grew 4.2% year/year, which was 100 basis points better than expected, beating estimates for the third straight quarter. Walmart U.S. comp sales grew 6.8% on a two-year stack basis, representing the strongest growth in 9 years. eCommerce sales grew by 43%, in-line with the third quarter.
The strong showing for the fourth quarter would seem to allay concerns about the consumer after the U.S. Census Bureau reported the worst retail sales report in nearly ten years last week. That December report may have been impacted by data collection issues during the government shutdown or by weakness in the markets during the second half of the month.
Walmart reaffirmed guidance for Fiscal 2020 (ending next January) as laid out at its Investment Community Meeting last October. The company calls for adjusted EPS to decrease in the low single-digit range due to costs from the company’s acquisition of Indian eCommerce company Flipkart (adjusted EPS would grow in the mid-single-digit range excluding Flipkart).
Encouragingly, Walmart expects continued strength this year, calling for 2.5-3.0% growth in Walmart U.S. comp sales on top of 3.6% growth last year. eCommerce sales are expected to grow by 35% on top of 40% growth last year.
Management acknowledged disappointment with recent changes in Indian law that favor local companies. Still, management said that the company is working on compliance and that they are still confident in the opportunity in that country, where the retail sector is highly fragmented. Walmart paid $16 bln for a 77% stake in Flipkart last Summer.
Investments in price, technology and overseas initiatives will continue to weigh on the company’s bottom line, so the current EPS multiple of 22x looks high, but these efforts continue to strengthen the company's competitive position. Walmart trades at a significant premium to Target (TGT) at ~13x but a notable discount to Costco (COST) at ~26x.
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