Wal-Mart Delivers 8th Straight Quarter of Positive Comps

E-commerce sales and GMV increased 11.8% and 13.0%, respectively, during Q2 FY17

w1Retailing behemoth Wal-Mart Stores Inc. (NYSE: WMT) announced its Q2 FY17 financial results on August 18th, 2016.

The Bentonville Arkansas-based Company operates retail stores in various formats around the world through three reportable segments: Wal-Mart U.S., Wal-Mart International, and Sam’s Club. The Wal-Mart U.S. segment includes the company’s mass merchant concept in the U.S., operating under the Walmart or Wal-Mart brand, as well as walmart.com. The Wal-Mart International segment includes numerous formats of retail stores, restaurants, wholesale clubs, including Sam’s Clubs, and various retail websites that operate outside the U.S. The Sam’s Club segment includes the warehouse membership clubs in the U.S., as well as samsclub.com. Each week, nearly 260 million customers and members visit its 11,539 stores under 63 banners in 28 countries and e-commerce websites in 11 countries.

With FY16 revenue of $482.1 billion, Wal-Mart employs about 2.3 million associates worldwide. Read more about Wal-Mart’s financial results below.

Q2 FY17 financial highlights

During Q2 FY17,  Wal-Mart began reaping the benefits of its strategy that included heavy spending to improve physical stores, enhancing e-commerce operations, and executing its omni-channel plan, by delivering an eighth consecutive quarter of positive comps. The Company also focused on building e-commerce capabilities globally with its recent alliance with JD.com in China and agreement to acquire Jet.com in the U.S.

w2During Q2 FY17, Wal-Mart’s total revenue grew 0.5% Y-o-Y to $120.9 billion. On a constant currency basis, total revenue increased 2.8% to $123.6 billion versus the prior year period. Globally, on a constant currency basis, e-commerce sales and GMV increased 11.8% and 13.0%, respectively, during Q2 FY17 compared to Q1 FY17.

Segmental highlights

Wal-Mart US: This segment reported a 3.1% Y-o-Y growth in net sales to $76.2 billion, with comp sales expanding 10 bps to 1.6% during the reporting quarter, driven by the seventh consecutive quarter of positive traffic, up 1.2%. Neighborhood Market comp sales increased approximately 6.5%.

Wal-Mart International: This segment reported a 6.6% Y-o-Y fall in net sales to $28.6 billion during Q2 FY17. On a constant currency basis, net sales grew 2.2% to $31.3 billion during the reporting quarter.

Sam’s Club: This segment reported a 1.3% Y-o-Y decline in net sales to $14.5 billion, with comp sales, excluding fuel, contracting 70 bps to 0.6% during the reporting quarter.

w3During Q2 FY17, Wal-Mart’s consolidated operating income increased 1.6%, including a gain of $535 million from the sale of Yihaodian. Excluding this gain, consolidated operating income declined 7.2% due to investments in people and technology, as well as currency exchange rate fluctuations. Finally, the closure of some of its weaker stores and changes to its merchandise mix had a positive impact on reported net income, which grew 8.6% Y-o-Y to $3.8 billion, or $1.21 a share, compared to $3.48 billion, or $1.08 a share, in the year-ago period. Currency negatively impacted EPS by approximately $0.03. Adjusted EPS of $1.07 excludes a non-cash gain of $0.14, net of tax, from the sale of Yihaodian in China.

Wal-Mart’s year-to-date operating cash flow was $14.9 billion and free cash flow was $10.3 billion, both approximately $5.0 billion higher than the year-ago period, due to improved working capital management, significant inventory improvement, and timing of payments.

Other highlights

Partnership with Uber and Lyft: Wal-Mart announced on June 5th, 2016, that it is looking to close the last-mile delivery gap with rival Amazon.com Inc. (NASDAQ: AMZN) by partnering with ride-hailing companies Uber Technologies Inc. and Lyft Inc. to launch a pilot grocery-delivery service. Wal-Mart will start testing its grocery delivery service through Uber in Phoenix and Lyft in Denver by late June 2016. Wal-Mart had earlier launched a similar pilot for Sam’s Club in March 2016 with Deliv to deliver general merchandise and groceries in Miami, Florida. With these measures, Wal-Mart is looking to ward off intense competition from Amazon, which has been expanding its grocery-delivery service, AmazonFresh, across major U.S. cities.

w4Curbside pick-up service: Wal-Mart has also expanded its curbside grocery delivery to a total of 54 markets and in over 200 stores, as of April 2016. The Company expanded the program into 54 markets in June 2016. By the end of July 2016, Wal-Mart will nearly triple the number of stores and markets that offer the curbside pick-up service.

w5Investments in e-commerce: To reverse the deceleration of its e-commerce business and take competition head-on with Amazon.com, the Company is investing $2 billion over two years to boost e-commerce sales and setting up new fulfillment warehouses to speed up delivery times and increasing the number of products sold on its website. Wal-Mart’s 7% constant-currency growth in e-commerce in Q1 FY16 is down from 8% growth in Q4 FY15 and 17% growth in Q1 FY15.

Agreement to buy Jet.com: On August 8th, 2016, Wal-Mart signed a definitive agreement to acquire Jet.com for approximately $3 billion in cash, a portion of which will be paid over time. Additionally, Wal-Mart will transfer $300 million worth of its common stock over time to Jet.com as part of the transaction. The acquisition, which will enable Wal-Mart to effectively compete with Amazon.com, will complement the Company’s multi-channel strategy already in place to serve customers across the Wal-Mart app, sites, and stores. The Wal-Mart-Jet.com deal is a win-win situation for both parties since it would also allow Jet.com plans to leverage Wal-Mart’s massive physical store network to grow its online business. Besides the reach and convenience, Wal-Mart’s massive network of physical stores would offer both companies another channel to acquire customers while providing a faster purchasing experience. Jet.com crossed US$1 billion run rate in GMV with over 4 million shoppers on its platform in July 2016. The acquisition, which is subject to regulatory approval, has been approved by the Boards of Directors for both companies and is expected to close by the end of December 2016.

w6Alliance with JD.com: On June 20th, 2016, Wal-Mart and JD.com (NASDAQ: JD), China’s largest e-commerce company by revenue, formed a strategic alliance that covers a wide range of business initiatives in both online and offline retail. For Wal-Mart, the alliance expands its opportunity in China’s burgeoning e-commerce sector and provides its stores and Sam’s Clubs with potential traffic from JD.com’s huge base of online customers and vast same-day delivery network. As part of the agreement, Wal-Mart will receive 144,952,250 newly issued JD.com Class A ordinary shares, amounting to approximately 5% of total shares outstanding.

Share repurchases

w7Wal-Mart returned a total of $3,677 million to shareholders through dividends and share repurchases. The company repurchased approximately 30 million shares in Q2 FY17. Wal-Mart has $12.7 billion remaining of $20 billion authorization approved in October 2015.

Guidance for Q3 FY17 and full year FY17

Wal-Mart estimates FY17 adjusted EPS of $4.15 to $4.35 and GAAP EPS of $4.29 to $4.49, both of which include an estimated dilutive impact to EPS of approximately $0.05 in Q4 FY17 due to expected operating losses and one-time transaction expenses related to the planned acquisition of Jet.com. The adjusted EPS guidance excludes the non-cash gain of $0.14, net of tax, from the sale of Yihaodian in China to JD.com.

Stock Performance

w8Wal-Mart’s stock ended the day at $72.70, slipping 0.15%, at the close on Monday, August 22nd, 2016, having vacillated between an intraday high of $73.14 and a low of $72.45 during the session. The stock’s trading volume was at 10,309,011 for the day. The Company’s market cap was at $231.22 billion as of Monday’s close.

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