Retail giant Walmart Inc. (WMT, Financial) reported impressive second-quarter results on Thursday. Shares jumped as much as 10% in early trading as the company posted its best same-store sales growth in more than a decade.
While the Arkansas-based company’s U.S. comparable sales grew 4.5% year over year, beating analyst expectations of a 2.4% increase, online sales gained 40% year over year, up from a 33% increase in the previous quarter. Total revenue climbed 3.8% to $128.03 billion, topping expectations of $125.97 billion. These numbers prove that not only is the company working toward maintaining its strong offline presence, but it has also been successful in its pursuit of capturing a larger chunk of online market share.
Moving on to some other metrics that support Walmart’s bull case, the company witnessed a 2.2% year-over-year increase in foot traffic in its brick-and-mortar stores. Moreover, the average ticket size increased 2.3% year over year, indicating increasing disposable spending and strong sentiment among consumers.
“Thanks to the hard work of our associates, we had a great quarter with strong results and momentum across the business,” CEO Doug McMillon said. “We're continuing to aggressively roll out grocery pickup and delivery in the U.S., and we recently announced expanded omnichannel initiatives in China and Mexico.”
Walmart’s performance was supported by a 0.5% month-over-month increase in retail sales to $507.5 billion, compared with a 0.2% increase in June. Moreover, the National Retail Federation is predicting a 4.5% growth in sales this year, up form its previous estimate of nearly 3.8% to 4.4% growth.
The retailer is also trying to expand its footprint in major international markets. As part of this initiative, Walmart acquired a controlling stake in Indian e-commerce platform Flipkart in May. The $16 billion deal, which is its biggest to date, is helping the company to more effectively compete with Amazon.com Inc. (AMZN, Financial).
Competing with Amazon, however, is not a walk in the park. While the e-commerce giant is reporting extremely strong numbers after its acquisition of Whole Foods last year, Walmart is working to not only maintain its position in the offline space, but aggressively ramping up its online operations as well. In addition to its online ordering and pick up service, the retailer is working on expanding and streamlining its same-day grocery delivery service.
As a result of the sizeable investments the retailer has made, Walmart suffered an $861 million loss, or 29 cents per share, this quarter. Adjusted for the one-time events, however, it recorded a profit of nearly $1.29 per share, surpassing analyst estimates of $1.21.
Owing to these positive numbers and a strong outlook, Walmart’s management upped its earnings guidance to between $4.90 and $5.05 per share. This was above FactSet’s expectations of $4.78.
Overall, it seems Walmart’s current market positioning is paying off. The company has an operating margin of 4.03%, compared with the industry median of 2.88%. Although we’ve seen relative declines in margins lately as a result of aggressive investments, the expected long-term benefit from a value perspective overshadows the short-term pain.
Disclosure: I do not own any of the stocks mentioned.
