Walmart Beats The Street, Raises Earnings Forecast

The best that could have been said about the Q2 results so far, as tracked across retail, is that they are somewhat less disastrous than they were in Q1. This isn’t to say there has been a tremendous amount of positive growth so much as losses have been somewhat less than initially expected.

Target is the best typifying example so far – the firm did manage to notch earnings results slightly better than what analysts were expecting, but overall they were pretty weak. Same-store sales are down, foot traffic is falling, revenue is off, and Target is looking at all these trends and officially revising their expectations down for the year.

Walmart, on the other hand, managed to notch out analysts’ predictions for earnings, but in a way more conducive to building investor confidence: sales are up, earnings are up and guidance for the year had gotten an upward revision, despite the big cash layout coming soon for the purchase of Jet.com.

That acquisition, however, highlights some of the question marks remaining about Walmart this morning. ECommerce, though showing stronger growth than it did last quarter, is still lagging behind the growth it was showing a year ago. And that brings the nagging question: can Walmart continue to look so strong when the rest of physical retail is struggling so hard?

By The Numbers

Analysts had predicted Walmart would take in $1.02 a share on $120.16 billion in revenue. Walmart actually logged  $1.07 on revenue of $120.85 billion (.5 percent growth).  That revenue count is slightly lower than last year’s $1.08 a share.

Same-store sales were up 1.6 percent, which is an improvement on the narrower 1 percent pick-up in Q1. This is also a beat for street analysts, who had been looking for 1-percent growth in comparable sales. Foot traffic was also on the increase for the seventh consecutive quarter, growing by 1.2 percent, and is probably the standout figure for Walmart given that falling foot traffic is otherwise epidemic in physical retail these days.

Walmart will buy Jet.com for $3.3 billion sometime between now and the end of 2016, and that is anticipated to bring on a 5 cent per share hit. That is loss is likely to hit in early in Q4. Nonetheless, Walmart revised its guidance for 2016 upward, and is now anticipating earnings $4.15 and $4.35 a share, compared to its prior estimate of $4 to $4.30 a share. Walmart predicted that numerically Q3 will look rather similar to Q2, with earnings between 90 cents and $1 a share and comparable sales rising between 1 and 1.5 percent.

“We’re pleased with the positive momentum in our business. Our strategy in the U.S. is working as we delivered an eighth consecutive quarter of positive [comparable sales], and international also performed well,” CEO Doug McMillon said in a statement.

Some of the momentum, however, was – well – less momentous. Online sales grew by 11.8 percent. The goods news is that is a notable pick-up on Q1, when Walmart had only single digital online growth of 9 percent. It is a falloff from last year’s 16-percent increase and is below the national average of 14.6 percent. Clearly, there is still work to do there, hence that big Jet.com buy and the attendant question marks.

About those question marks …

Watching And Waiting

With its big price tag and bigger ambition, Jet.com is Walmart’s flashiest play for digital dominance during Q2, but certainly not its only one.

Walmart Pay, the retailer’s emerging QR code-based payments platform, got its big nationwide push during the second quarter of the year, as did its launch of ShippingPass, a membership program designed to compete with Amazon Prime that offers Walmart customers free shipping. But, discount focused as Walmart historically is and plans to continue to be, it is much cheaper at $49 a year.

“We remain focused on building eCommerce capabilities globally,” McMillon further noted of last quarter’s earnings. “Walmart is uniquely positioned to provide customers with a seamless shopping experience where we save them time and money.”

Walmart has also seen some big gains by rethinking their store design some. Neighborhood Market stores, which focus more tightly and have a smaller footprint, saw 6.5 percent growth. That experiment worked better than Walmart Express, their smaller grocery-focused chain, that Walmart announced it was shuttering in early 2016.

Walmart’s road ahead is not going to be easy, despite its massive scale, scope and profitability. The chain-wide wage increases and retraining initiative will take a pretty notable bite out of share price on the order of 30 cents per share. Walmart has often been the beneficiary of some tailwinds like lower fuel prices, strong employment numbers and increased wages among workers. But those gains are now possibly being offset by the higher cost of the dollar and deflating prices in grocery as a variety of competitors try to see just how low prices have to go to keep consumers loyal.

And then it remains to be seen how all those technical initiatives play out. Will things like ShippingPass, Walmart Pay and Jet’s basket building tech make Walmart.com the digital destination it wants to be?

Time will tell, and perhaps the world will get to hear a little more about it during Walmart’s investor call.

We’ll keep you posted.