Wal-Mart Stores Inc. (WMT, Financial) recently came out with its third quarter numbers, which surpassed expectations of analysts. The company’s earnings per share for the quarter came in at $1, which was 3 cents more than what the analysts looked for. Moreover, the world’s largest retailer generated third quarter revenue of $123.18 billion, far better than expectations of $120.1 billion.
In a nutshell
The U.S. retailer recorded third quarter net income of $1.75 billion. Strong earnings had put the company in a position to forecast a robust full year outlook. Wal-Mart projects non-GAAP EPS to range from $4.38 to $4.46 per share, which is more than its prior forecast of $4.30 to $4.40 a share.
Wal-Mart’s U.S. same store sales grew 2.7%, marking 13 successive quarters of gains. This was the best comps growth for Wal-Mart in eight years. The grocery segment during the quarter was stunning, as comps in that segment were the best in almost six years.
In the third quarter, the Arkansas-based company saw mammoth 50% sales growth in the online segment. The growth rate in online net sales was, however, down from the previous two quarters, which saw improvement of 60% and 63%, respectively. Both e-commerce and brick-and-mortar jointly helped the big box retailer to deliver solid results. Wal-Mart’s CEO and president, Doug McMillon, commented in the earnings release:
"We are pleased with the strong results in the quarter across each of our business segments, and I want to thank our associates for their commitment and great work to make it happen."
He further added, "We have momentum, and it's encouraging to see customers responding to our store and e-commerce initiatives. We are leveraging our unique assets to save customers time and money and serve them in ways that are easy, fast, friendly and fun."
Necessary steps
The highlight for the quarter remained the rapid growth and expansion of the food section that was powered by online grocery pickup. The company had also launched a new app-return friendly policy, called Mobile Express Returns, that allows customers to return products bought on Wal-Mart.com to a physical store location. The prime advantage of this program is 90% of Americans live within 10 miles of Wal-Mart stores.
Wal-Mart had lately partnered with Bossa Nova, which is the leading developer of robots that helps to scan shelves to help employees with restocking. At the same time, the robot helps the customers in finding specific products and also obtain real-time information on promotions and physical inventory levels. Heading into the holiday season, the world’s largest retailer has put a major step towards the autonomous world of operation. This will help Wal-Mart compete against its arch-rival and e-commerce giant, Amazon (AMZN, Financial).
Wal-Mart has acquired Jet.com, Bonobos, Modcloth and Moosejaw under its umbrella to bump up its online sales so that it can effectively fight Amazon and cement its supremacy in this arena. The company is also working on extending its grocery pick-up service, expanding digital assortments, collaborating with Google (GOOG, Financial) on voice-activated shopping and partnering with Lord & Taylor for adding high-end apparel.
On the flip side, Wal-Mart’s aggressive efforts in promotion and increased spending on strategic moves have marginally curbed its profit margin. The company has been spending massively on maintaining competitive prices, which impacted its operating margin that reduced to 3.9% during the quarter relative to 4.4% a year earlier. Now, as the holiday season fast approaches, Wal-Mart intends to invest in stores and widen its online merchandise to make the most of the period.
Disclosure: I do not hold any position in the stocks mentioned in this article.
