Wal-Mart (WMT, Financial) reported its third quarter 2018 earnings on Thursday, crushing Wall Street forecasts and proving beyond doubt that it is simply not going to be easy for other retailers - primarily Amazon - to push it out of the way. Wal-Mart’s comparable store sales in the U.S. grew 2.7% during the quarter, making it the 13th consecutive quarter of comps growth.
Increasing sales numbers is one thing, but to do that when you are the number one player in terms of revenue, and in the highly competitive retail segment, is another altogether. Except for Wal-Mart, Costco and Amazon, most of the major retailers are reporting weak sales growth and dropping margins, which further highlights the strengthening position of Wal-Mart at the top of the U.S. retail market.
The comparable store sales growth of 2.7% looks even more formidable because, although Wal-Mart increased its ticket by 1.2% during the quarter, it was still able to see transactions go up by 1.5%. Considering the conditions in the market, Wal-Mart is possibly the only big box retailer in the country to successfully pass on more than a percentage point of price increase and still see traffic growth.
E-commerce sales continued to grow for Wal-Mart, as the company reported a net online sales increase of 50% during the quarter. Total sales increased by nearly $5 billion during the period, reaching $123.179 billion and growth of 4.2% compared to last year. Operating margin fell by 50 basis points during the quarter to from last year’s 4.4% to the current 3.9%.
Wal-Mart management addressed the margin decline issue during the third quarter earnings call. “Gross profit margin declined 29 basis points during the quarter. Price investments in certain markets and the mix effects of our growing eCommerce business were the primary contributors to the decline, although the impact from hurricanes in the U.S. was a significant contributor as well," the company said.
The better-than-expected quarterly results also helped the company raise its outlook for the year, and it now expects 2018 adjusted earnings per share in the $4.38 to $4.46 range, up from the previously expected $4.30 to $4.40 range.
Wal-Mart’s stock price has surged from under $70 to the current $100 levels in the last year, and the stock will continue to inch forward as long as comparable sales remain in positive territory. The growth of Amazon has put the squeeze on a lot of retailers, making their lives difficult, but Wal-Mart seems to be swimming in a completely different direction, growing from strength to strength with each passing quarter.
Disclosure: I have no positions in the stock mentioned above and no intention to initiate a position in the next 72 hours.
