Walmart beats on earnings and revenues as US e-commerce push pays off

  • Walmart says U.S. online sales grew 33 percent.
  • U.S. same-store sales were up 2.1 percent, beating estimates of 2.0 percent.
  • Sam's Club same-store sales were up 3.8 percent, driven by comparable traffic growth of 5.6 percent.

Walmart on Thursday reported fiscal first-quarter earnings that beat expectations on the top and bottom lines, as its e-commerce business rebounded.

After a disappointing e-commerce performance last quarter, Walmart said U.S. online sales grew 33 percent. The rise implied its investment, namely in online grocery and its website design, is paying off.

Here's how the company did compared with what Wall Street expected:

  • Earnings: $1.14 per share vs. $1.12 per share forecast by Thomson Reuters
  • Revenue: $122.69 billion vs. $120.51 billion forecast by Thomson Reuters
  • Same-store sales growth 2.1 percent vs. 2.0 percent forecast by Thomson Reuters

"Online grocery continued to accelerate and [we] had the new Walmart.com site redesign late in the quarter. We also have new brands in e-commerce including the partnership with Lord & Taylor, so there are a lot of different things driving growth there," Chief Financial Officer Brett Biggs said in an interview with CNBC.

Walmart has been transforming its online grocery business and re-outfitting its stores to adjust for online delivery. It said Thursday it is on track to increase online grocery pickup by around 1,000 stores this year, bringing it to more than 2,100 locations across the U.S. It is also rolling out grocery delivery to about 800 stores by year-end.

Still, competition in online grocery continues to heat up. Whole Foods on Wednesday introduced its new exclusive discounts for Prime members Whole Foods on Wednesday introduced its new exclusive discounts for Prime members. Kroger announced early Thursday a new exclusive online delivery deal with Ocado.

The competition, both online and at its brick-and-mortar business, has put the squeeze on Walmart's profitability. The retailer reported its gross profit margin dropped 15 basis points, hurt by heavy discounting and higher transportation costs.

"...We have been investing in price significantly over the past few years," Biggs said. "We are constantly monitoring price gaps and feel good about where we are on price position — we will continue to do what's right for our customers and will be thoughtful about pricing going forward."

Meantime, Walmart, which is also in a battle with Amazon for digital eyeballs, recently redesigned its website, making it more modern and customized. It said Wednesday its new "store within a store" partnership with Lord & Taylor, through which it will be selling the retailer's clothes, will be launching in phases in coming weeks.

"We remain confident that digital numbers will improve further, mainly thanks to the investments Walmart is putting into its digital operation," said Neil Saunders, managing director of GlobalData Retail.

Those investments, though, came at a sacrifice. In the quarter ended April 30, Walmart said net income fell to $2.13 billion, or 72 cents per share, from $3.04 billion, or $1 per share, a year earlier.

On an adjusted basis, Walmart earned $1.14 per share, beating Thomson Reuters' expectations of $1.12 a share.

"Diverting some profit to prudent investments is now a price for survival across most of the retail sector. Walmart has shown an impressive willingness to grasp this nettle," added Saunders.

Walmart reported strong performance in its stores as well. U.S. same-store sales were up 2.1 percent beating estimates of 2 percent. Sam's Club same-store sales were up 3.8 percent, driven by comparable traffic growth of 5.6 percent.

"Sam's Club had one of its best quarters," Biggs said. "Fresh food has been a strength."

Sales rose 4.4 percent to $122.69 billion, beating estimates of $120.51 billion.

Walmart shares fluctuated after the earnings release. Earlier Thursday, the stock posted gains, but in midday trading shares were down about 1 percent.

International transformation

Walmart is in the midst of an international transformation, announcing two deals over the past month. Walmart reported net sales in its international business of $30.3 billion for the quarter, an increase of 11.7 percent.

It said in April that it plans to partially exit its stake in British grocer Asda by merging the business with peer J Sainsbury.

"We've made a number of announcements of strategic moves we believe will strengthen our position around the world, Q1 is a good example of why we are able to do that — we are in a great financial position and the underlying business was very strong," Biggs said.

Earlier this month, it announced a $16 billion acquisition of Indian e-commerce giant Flipkart. The announcement sparked a sell-off of Walmart shares, likely a result of the big ticket price.

Walmart said it expects its Flipkart investment to reduce fiscal year 2019 earnings per share by about 25 cents to 30 cents, if the transaction closes at the end of the second quarter.

It also said Thursday it recently reached agreements to sell its banking operations in Walmart Canada and Walmart Chile.

In the latest quarter, the company recorded an unrealized loss of $1.8 billion from its investment in JD.com, due to the decline of the Chinese e-commerce company's stock price during the period. As result of new accounting principles, Walmart must now report such unrealized gains and losses.