Wal-Mart Spikes On Great Earnings

Wal-Mart is no longer a growth stock which can keep up with the returns from the FAANG names, but it is always worth reviewing its earnings report because it is a great barometer for the health of the consumer since it is the biggest retailer in America.

The great report confirms the strong July retail sales report I reviewed in my previous article. Adjusted EPS was $1.29 which beat estimates for $1.22. Revenue was $128.03 billion which beat estimates for $125.97 billion. Same-store sales in America were up 4.5% which beat estimates for 2.4% growth. Q2 same-store sales growth was the highest in over 10 years.

Online retail sales were up 40%. Growth was boosted by the website redesign and the addition of grocery delivery options. Wal-Mart expects 40% growth for the whole year. It is certainly taking share from rivals as it utilizes its brand recognition, logistics capabilities, and wide product selection to grow sales in this previously untapped market.

Last year’s Q3 had 50% sales growth, so online sales growth has been a driver of the business for a while. The impact will be larger as growth continues, but it will decelerate as it gains scale. The company purchased the biggest online retailer in India, Flipkart, to continue this pace of torrid growth. It also signed a partnership with Lord & Taylor to bring new products to the website.

Wal-Mart comments on the tariffs are pivotal to helping us understand how they will affect S&P 500 earnings going further. 

The CFO, Brett Briggs, said, “While we know questions persist about tariffs, the potential future impact is difficult to quantify. We are closely monitoring the tariff discussions and are actively working on mitigation strategies, particularly in light of potentially escalating duties.” The great numbers tell us the tariffs haven’t impacted the business that much yet.

Full year estimates for EPS were revised from $4.75 to $5 to $4.90 to $5.05. Same-store sales are expected to increase 3% in fiscal 2019, which is up from the expected 2% increase. As a result of these great numbers, Wal-Mart stock was up 9.31% on Thursday; it was the biggest gainer in the Dow and the S&P 500.