Walmart Misses On Revenue, Comps; EPS Beats Thanks To Lower Tax Rate; Operating Income Slides

Retail giant Walmart reported adjusted Q3 EPS of $ 0.98, beating expectations of $ 0.96, despite a reported $ 0.03 hit to the bottom line due to currency impact; the company beat EPS due to a lower provision for income taxes, after it reduced its effective tax rate from 33.8% to 29.3%. Had WMT used its prior year effective tax rate, it would have missed EPS by 5 cents, reporting $ 0.91 instead.

More troubling was the drop in consolidated earnings of $ 3.034 billion which declined by 8.2% from $ 3.3 billion from a year ago. Operating income of $ 4.5 billion tumbled 12.2% from the $ 5.2 billion a year ago as a result of a 5.5% jump in SG&A, mostly in the form of higher wages. The company’s revenue rose 0.7% from a year ago to $ 118.2 billion, missing expectations of $ 118.8 billion, with comp store sales growth of 1.2% also missing estimates of a 1.3% increase. 

The good news: Wal-Mart raised low end of FY2017 EPS forecast, now sees adj. EPS $ 4.20-$ 4.35, saw $ 4.15-$ 4.35, est. $ 4.33; The new range includes 17c gain from sale of Yihaodian in China in 2Q, 3c negative impact from taxes on sale gain;

Walmart also sees 4Q Wal-Mart U.S. comp. sales up 1%-1.5%, est. up 1.4% (Consensus Metrix avg. of 22); It sees 4Q Sam’s Club comps. up 1%-1.5%, est. up 0.9%

The company reported Wal-Mart U.S. traffic up 0.7% y/y, with an average ticket up 0.5%, however that was not enough to offset the substantial jump in overhead.

Doug McMillon, President and CEO, WalMart Stores, made the following statement:

“We had a solid third quarter. Our ecommerce growth accelerated, operations in the U.S. continued to strengthen and international delivered another solid performance. We are pleased that we can see real progress stemming from our strategic choices and we appreciate the great work by our associates. Yet, we are not satisfied. We will continue to change and pick up speed to reach our longer term aspirations. We’re positioned well for this important fourth quarter and wish everyone a happy, peaceful and prosperous holiday season.”

Some more details from the press release:

  • Diluted EPS was $ 0.98. Currency negatively impacted EPS by approximately $ 0.03
  • Total revenue was $ 118.2 billion, an increase of 0.7%. On a constant currency basis1, total revenue was $ 120.3 billion, an increase of 2.5%.
  • Walmart U.S. comp sales increased 1.2%, driven by a traffic increase of 0.7%. Neighborhood Market comp sales increased approximately 5.2%.
  • Net sales at Walmart International were $ 28.4 billion, a decrease of 4.8%. Excluding currency impacts, net sales were $ 30.5 billion, an increase of 2.4%.
  • Globally, on a constant currency basis, e-commerce sales and GMV increased 20.6% and 16.8%, respectively, representing continued acceleration. Excluding Yihaodian, GMV increased 28.6%.
  • Consolidated operating income decreased 10.4%. As expected, investments in people and technology, as well as currency exchange rate fluctuations negatively impacted results. Excluding last year’s lease accounting benefit of $ 156 million, operating income decreased 7.9%. Year-to-date operating cash flow was $ 19.6 billion and free cash flow  was $ 12.2 billion, both approximately $ 5 billion higher than last year led by improved working capital management.
  • The company returned just under $ 3 billion to shareholders during the quarter through dividends of $ 1.5 billion and share repurchases of $ 1.4 billion.

The full summary results:

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