Wal-Mart reported better-than-expected fiscal second quarter results on Thursday, August 17, as both its bottom line and revenue came in ahead of market expectations. However, the stock dropped slightly nevertheless. On a reported basis, the company’s revenue increased 2% year over year (y-o-y) to $123.4 billion, driven by growth in the domestic market due to its marketplace offerings, partially offset by foreign currency fluctuations. The retailer’s consolidated net income declined 23% y-o-y to $2.9 billion in the second quarter. Wal-Mart also posted earnings per share of $0.96, down 21% y-o-y, and adjusted EPS of $1.08, which was at the upper end of its guidance range.
Wal-Mart’s e-commerce sales grew an impressive 60% y-o-y in Q2. In terms of the company’s segments, Wal-Mart U.S. delivered a strong top line performance with comparable sales of 1.8%, which was well above the consensus estimates of 1.3%. However, the retailer’s international sales were down 1% y-o-y to $28.3 billion during the quarter, driven by sales headwinds from the divestiture of businesses – Yihaodian in China and Suburbia in Mexico. In addition, Sam’s Club comparable sales grew 2% y-o-y (ex. fuel) in the quarter.
On the cost side, Wal-Mart’s total operating expenses increased in the quarter, primarily due to ongoing investments in e-commerce and technology. For the second quarter, Wal-Mart generated $11.3 billion in operating cash flow and $7 billion of free cash flow, which declined 33% y-o-y. This decline was primarily due to an increase in incentive payments, as well as a comparison against significant working capital changes last year.
In Wal-Mart U.S., strong comparable sales growth of 1.8% was driven by a 1.3% increase in customer traffic and 0.5% increase in average ticket size. Overall, all store formats had positive comparable sales and e-commerce contributed approximately 70 basis points to the segment in the first quarter. Additionally, the grocery business continued to improve, as food categories delivered the strongest quarterly comparable sales performance in five years, led by strong customer traffic and a return of slight market inflation in food, excluding price investments. Also, the segment’s operating income grew 2% y-o-y during the quarter.
Wal-Mart’s e-commerce division includes all web-initiated transactions, including those through Walmart.com such as ship-to-home, ship-to-store, pick up today, and online grocery, as well as transactions through Jet.com. Globally, on a constant currency basis, the company’s e-commerce sales and GMV increased 60% and 67% (including acquisitions), respectively, in this quarter. The majority of this growth was organic through Walmart.com, including online grocery, which is growing quickly. This growth was also likely boosted by the company’s recent acquisitions, such as Moosejaw, Shoebuy and Bonobos, which have provided expertise in high margin categories like shoes and apparel. From a marketplace perspective, the company covers more than 67 million SKUs to date, up more than 30% from the first quarter.
Future Outlook
For the upcoming quarter, Wal-Mart expects comparable sales growth for Wal-Mart U.S. to range between 1.5% to 2.0%, and Sam’s Club (ex. fuel) comparable sales to range between 1.0% to 1.5%. Additionally, the company also expects earnings per share in the range of $0.90 to $0.98 in the second quarter. For the full year fiscal 2018, the company now expects its adjusted EPS to range between $4.30 to $4.40, as compared to consensus’ $4.36 per share.
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