Walmart earnings beat as investments fuel sales growth, retailer in 'good position' to hit 2019 goals

Key Points
  • Walmart earnings for the fiscal first quarter top analysts' estimates.
  • Sales come up short, as international revenues decline from a year earlier.
  • Walmart's e-commerce revenues during the quarter grew 37%, as the retailer continues to make investments online to compete with Amazon.
Walmart CFO to CNBC: Increased tariffs will increase prices
Walmart CFO to CNBC: Increased tariffs will increase prices

Walmart on Thursday reported fiscal first-quarter earnings that topped analysts' expectations despite a recent string of investments weighing on margins.

The world's largest retailer said the results put it in a "good position" to achieve its full-year goals, even though it will face tougher comparisons during the second quarter because of weather-related benefits it reaped in 2018.

Walmart's investments — in its supply chain, grocery business and website — appear to be paying off, as sales continue to climb. And its e-commerce revenues are rising at a rapid pace compared with the industry. Still, first-quarter sales fell short of expectations, impacted by currency headwinds, which dragged on its overseas business.

Walmart shares rose more than 3% by Thursday afternoon, with investors applauding the results.

Here's what Walmart reported compared with what analysts were expecting, based on Refinitiv data:

* Earnings per share: $1.13, adjusted, vs. $1.02 expected
* Revenue: $123.93 billion vs. $125.03 billion expected
* U.S. same-store sales: growth of 3.4% vs. increase of 3.3% expected

Walmart has been pouring money into new technology that helps it fulfill online orders faster, grow its massive grocery business, stock shelves with merchandise and even train its employees. Competing with Amazon online, Walmart just this week announced it is starting to roll out next-day delivery across the country for more than 200,000 items, though it didn't disclose exactly how much money it will be spending to do that. That was after Amazon said on April 25 it will be making free, one-day shipping a new perk for Prime members.

"We're continuing our transformation to become more of a digital enterprise," Walmart CEO Doug McMillon said Thursday in a statement.

E-commerce sales grew 37%, boosted by its home and fashion businesses, Walmart said. That was better than online sales growth of 33% a year earlier, but moderated from a 43% increase during the holiday quarter.

Cramer: Walmart consumers won't feel the tariff hike
Cramer: Walmart consumers won't feel the tariff hike

Walmart reported net income for the quarter ended April 30 of $3.84 billion, or $1.33 per share, compared with $2.13 billion, or 72 cents a share, a year earlier. Excluding one-time charges, including unrealized gains and losses related to Walmart's investment in, Walmart earned $1.13 a share, 11 cents ahead of analysts' expectations, based on Refinitiv data.

Total revenues grew about 1% to $123.93 billion from $122.69 billion, falling short of expectations for $125.03 billion.

Net sales in the U.S. climbed 3.3%, while Sam's Club sales were up 1.5%, but international sales tumbled 4.9%, Walmart said. On a constant currency basis, net sales overseas were up 1.2%.

Sales at Walmart stores in the U.S. open for at least 12 months were up 3.4%, the best growth of that metric during the first quarter in nine years, Walmart said. Analysts were calling for growth of 3.3%. Walmart said transactions were up 1.1%, and the average ticket increased 2.3% at its U.S. stores.

Sam's Club same-store sales were up just 0.3%, hurt by lower tobacco sales, according to the retailer. In 2018, it made the decision to stop selling tobacco products at some locations. Analysts were calling for same-store sales growth of 1.6% for Walmart's wholesale unit that rivals Costco.

"We are pleased with the progress and members are responding favorably, but there's more work to do," CFO Brett Biggs said about Sam's Club.

Walmart called out strength of its in-house brands, particularly in grocery, during the quarter, helping margins. It also said it felt less pressure from transportation costs. And within e-commerce, it said stronger sales of fashion accessories and home goods also boosted profits, as these two categories are the biggest contributors to gross margins out of everything the retailer sells, according to Marc Lore, the head of Walmart's U.S. e-commerce business.

The biggest retailer in the world — headquartered in Bentonville, Arkansas — has been on an acquisition spree to beef up its e-commerce business, buying companies ranging from to online lingerie retailer Bare Necessities. The company has said it is targeting e-commerce sales growth of 35% for this year, which won't be as robust as 2018.

Walmart is still spending money on improving its supply chain to make more of its stores capable of packing and delivering grocery orders placed via the internet. The company has said it's on track to offer pickup for online grocery orders at 3,100 stores, and same-day grocery delivery from 1,600 locations, by the end of the year.

It's also adding dozens of veterinary clinics to its stores, hoping to boost foot traffic, and is testing an "Intelligent Retail Lab" at one Walmart location in New York that's using sensors, cameras and processors to help cut down time workers spend on mundane tasks, like finding out-of-stocks.

"Walmart's early investments in tech/ecommerce and practice of continued price investment, which benefits from the company's unmatched scale, have positioned it well for future share gains," Jefferies said in a research note ahead of earnings.

One of the biggest threats hanging over Walmart for the remainder of the year could be the possibility of additional tariffs, impacting apparel and footwear specifically.

"Increased tariffs will increase prices for customers," Biggs said Thursday, adding that the retailer is "hopeful that an agreement can be reached" between the U.S. and China.

Macy's CEO Jeff Gennette also this week spoke to how a 25% tariff on another $300 billion worth of Chinese goods, which the White House is still considering, would likely trickle down and hurt shoppers.

Walmart shares are up about 18% from a year ago, bringing its market cap to $286.4 billion. Amazon shares have rallied about 19% over that period, while Target's stock is down 3% from a year ago.