Walmart’s U.S. comps surge 2.7%

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Walmart’s U.S. comps surge 2.7%

By Mike Troy - 11/16/2017

Walmart hasn’t had a quarter this good in a long time. Profits beat estimates and the full year forecast was increased. Here’s what worked and why the company is optimistic.

Almost everything went well for Walmart in the third quarter with sales growth across all three divisions resulting in better than expected profits and an elevated full year outlook.

Total revenue, excluding foreign exchange effects, increased by $4.5 billion, or 3.8%, to $122.7 billion. The biggest driver of the top line increase was Walmart U.S., which saw sales increase 4.3% to $77.7 billion and e-commerce growth of 50%. Same store sales surged 2.7% and benefitted from hurricane related sales, but even without the estimated 30 to 50 basis point positive effect, the U.S. division exceeded its forecast of 1.5% to 2% growth. The key driver was food.

“The food business, in particular, has accelerated and delivered the strongest quarterly comp sales performance in almost six years with our fresh meat, bakery and produce teams leading the way,” Walmart President and CEO Doug McMillon said in a prepared statement. “Expense leverage has also been a priority and we’re pleased that the segment leveraged expenses in the third quarter.”

The leverage was marginal, with operating income up 0.8% to slightly more than $4 billion, but in the current operating climate of expense headwinds related to labor costs and omnichannel initiatives, any sort of leverage is a victory.

Walmart expects fourth quarter same store sales growth of 1.5% to 2%. The relatively tight guidance range is in contrast to the outlook Target provided the prior day with growth forecast in the range of flat to 2%.

Sales at Sam’s Club increased 4.4% to nearly $14.9 billion thanks to a 3.6% increase in traffic as transaction size was down slightly. Same store sales, excluding fuel, increased 2.8%, much better than the 1% to 1.5% forecast. Fourth quarter comps are forecast to 1.5% to 2%.

International sales increased 2.5% to $29 billion excluding the effects of foreign currency, with 10 of the 11 international markets producing same store sales growth.

The broad based sales strength enabled Walmart to top its earnings per share forecast, posting a $1 a share adjusted figure compared to guidance of 90 cents to 98 cents. After exceeding its third quarter forecast, Walmart increased its full year outlook to a range of range of $4.38 to $4.46, compared to prior guidance of $4.30 to $4.40.

Commenting on the performance, CFO Brett Biggs added, “we expect top line growth going forward to be led more by comp sales and e-commerce with less emphasis on new units in the U.S. We have good sales momentum and cost transformation is gaining traction. This gives us confidence in our ability to operate with discipline and leverage expenses.”

Biggs added that Walmart is prioritizing e-commerce, technology, supply chain and store remodels over new stores and clubs when it comes to capital allocation because the company believes those investments will contribute to long-term value creation for shareholders.

“We’re excited about the future of Walmart,” Biggs said.

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