Walmart raised its annual sales and profit forecast for the second straight quarter after the third quarter exceeded analyst estimates. Sales in the quarter grew 5.2 percent with strength across segments and comps rising 4.9 percent for Walmart U.S.

Adjusted EPS was $1.53, just ahead of the analysts’ consensus estimate of $1.52. Revenue of $160.8 billion topped analysts’ consensus target of $159.7 billion.

Third-quarter Highlights

  • Consolidated revenue of $160.8 billion, up 5.2 percent, or 4.3 percent in constant currency
  • Consolidated gross margin rate up 32bps was positively affected by a slight improvement for Walmart U.S. and the timing of Flipkart’s The Big Billion Days (BBD) event, which flipped from Q3 last year to Q4 this year
  • Consolidated operating expenses as a percentage of net sales are down 182bps, lapping a discrete charge from last year. On an adjusted basis, up 37bps on variable pay expenses and store remodels
  • Consolidated operating income was up $3.5 billion, or 130.1 percent, and adjusted operating income was up 3.0 percent positively affected by the impact of currency and LIFO of 2.7 percent and 1.9 percent, respectively
  • ROA at 6.5 percent; ROI at 14.1 percent, up 130 bps
  • Inventory of $64.0 billion, a decrease of $0.8 billion
  • Global advertising business grew approximately 20 percent, affected by BBD moving to Q4. Walmart Connect up 26 percent, Sam’s Club MAP up 27 percent
  • Walmart U.S. comp sales up 4.9 percent and eCommerce up 24 percent, led by pickup & delivery
  • Adjusted EPS of $1.53 excludes the effects, net of tax, of $1.36 from net losses on equity and other investments

“We had strong revenue growth across segments for the quarter, and we’re excited to get an early start to the holiday season. From a Thanksgiving meal that costs less than last year to great prices on fashion, toys, electronics, and seasonal decorations, we’re here to help families from around the world make this a special time. Looking ahead, our inventory is in good shape, the teams are focused, and our associates are ready to serve our customers and members whenever and however they want to be served,” said Doug McMillon, president and CEO of Walmart.

Walmart U.S.
Net sales reached $109.4 billion, up 4.4 percent year over year. Comps grew 4.9 percent against an 8.2 percent gain in the year-ago period. Operating income eased 2.2 percent to $5.0 million.

Revenue growth reflected strong growth in transaction count both in-store and digitally. Sales strength was led by grocery and health & wellness, while general merchandise sales declined modestly. Growth in e-commerce was 24 percent, led by strength in pickup & delivery. Gross profit rate increased 5 bps; operating expense deleverage of 35 bps. Walmart Connect advertising sales grew 26 percent. Inventory declined 5 percent with higher in-stock levels

Walmart International
Sales totaled $28.0 billion, up 10.8 percent year over year and ahead 5.4 percent on a currency-neutral basis. Operating income improved 10.7 percent to $1.0 billion.

The revenue gains on a currency-neutral basis were led by Walmex and China. The timing of Flipkart’s BBD event affected Q3 growth and will benefit growth for Q4. E-commerce sales declined 3 percent, while advertising grew 4 percent; both were affected by the timing of BBD. Gross margin rate increased 151 bps, mostly due to the timing of BBD. Operating expense deleverage of 75 bps, mostly due to the timing of BBD

Sam’s Club U.S.
Sales amounted to $22.0 billion, up 2.8 percent. Sales were ahead 3.2 percent excluding fuel. Operating earnings gained 5.5 percent to $0.6 billion. Solid comp sales were led by food and consumables, and healthcare as well as positive unit growth overall. Dollar and unit market share was gained in grocery and general merchandise categories, including apparel and automotive. Strong growth was seen in membership income, up 7.2 percent, with record total membership and Plus penetration at quarter-end

Outlook
Walmart’s updated guidance for the year calls for:

  • Consolidated net sales (constant currencies): Increase approximately 5.0 percent to 5.5 percent (Prior, increase approximately 4.0 percent to 4.5 percent)
  • Consolidated operating income (constant currencies): Increase approximately 7.0 percent to 7.5 percent, including expected 70bps tailwind from LIFO (Prior, Increase approximately 7.0 percent-7.5 percent, including an expected 30bps tailwind from LIFO)
  • Interest: Increase approximately $300M vs. LY (Prior, Increase approximately $500M v. LY)
  • Effective tax rate: Unchanged at approximately 26.5 percent
  • Non-controlling interest: Approximately $0.27 headwind to EPS vs. LY (Prior, approximately $0.26 headwind to EPS)
  • Adjusted EPS: $6.40 to $6.48, including expected $0.03 headwind from current year LIFO charges, $0.04 benefit YOY (Prior, $6.36 to $6.46, including an expected $0.05 impact from LIFO)
  • Capital expenditures: Unchanged from prior guidance at flat to up slightly vs. LY

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