Walmart Q2 Net Sales Up

Wal-Mart Stores Inc. has reported consolidated net sales for the second quarter ended July 31, 2014, of $119.3 billion, an increase of 2.8 percent from last year. This quarter included the negative impact of $696 million from currency exchange rate fluctuations. On a constant-currency basis, net sales would have grown 3.4 percent to $120 billion. Membership and other income went up 8.2 percent versus last year. Total revenue came to $120.1 billion, an increase of about $3.3 billion, or 2.8 percent.

Consolidated net income attributable to Walmart was $4.1 billion, a 0.6 percent increase. Diluted earnings per share from continuing operations attributable to Walmart were $1.21, or 1.6 percent below last year’s $1.23.

"I'm pleased with our solid earnings-per-share performance," said Walmart President and CEO Doug McMillon. "As it relates to the positives from the quarter, I'm encouraged by the performance of our International business, our Neighborhood Market sales in the U.S. and by our e-commerce growth. As it relates to our challenges in the quarter, we wanted to see stronger comps in Walmart U.S. and Sam's Club, but both reported flat comp sales. Stronger sales in the U.S. businesses would've also helped our profit performance."

Continued McMillon: "We see opportunities to improve in merchandising, pricing and store level service in our supercenters, and we are working to close those gaps. Our investments in e-commerce and mobile are very important, as the lines between digital and physical retail continue to blur. Our customers expect a seamless experience, and we're working to deliver that for them around the world."

As McMillon noted, Walmart U.S. comparable-store sales were flat for the 13-week period ended Aug. 1, while comps for the Neighborhood Market format rose about 5.6 percent. Walmart U.S. net sales grew $1.9 billion, or 2.7 percent, to more than $70 billion.

During the 13-week period, Walmart U.S. comp traffic dipped 1.1 percent, while average ticket edged up by the same percentage. E-commerce sales positively affected comps sales by about 0.3 percent for the 13-week period.

"Our e-commerce business, including store-fulfilled sales, delivered double-digit sales growth," said Walmart U.S. President and CEO Greg Foran. "Neighborhood Markets continued to perform well … Comp store traffic grew 4.1 percent. During the second quarter, we opened 22 Neighborhood Markets and remain on track to deliver 180 to 200 new units for the year."

For the 13-week period, excluding fuel, Sam's Club comps were up 0.3 percent, and average ticket was down 0.3 percent. E-commerce sales positively affected comps by about 0.3 percent for the period. However, the division delivered 11.9 percent membership income growth for the quarter.

"Our top priority at Sam's Club remains growth -- growing our member base and growing sales," noted Rosalind Brewer, the banner's president and CEO. "We're taking steps to increase the value of membership through investments in Plus member cash rewards and the cash-back Mastercard. It's still early, but member response has been positive."

Walmart International's net sales increased 3.1 percent to $33.9 billion. On a constant currency basis, net sales would have grown 5.3 percent. Currency exchange rate fluctuations adversely affected net sales by about $700 million.

"We remain focused on price investment across all our markets and expect to continue driving improved comp performance," observed David Cheesewright, Walmart International president and CEO. "I am pleased with the trends in many of our markets, which were driven by a continued focus on being the lowest-cost operator."

E-commerce sales globally rose about 24 percent on a constant-currency basis, with double-digit growth logged in the United States, the United Kingdom, China and Brazil.

'Evolutionary Change' Detected

Despite Foran's recent well-publicized promotion to his current position at Walmart U.S.'s helm, succeeding Bill Simon, Stephen Springham, senior retail analyst at London-based Planet Retail, noted "little discernible change on the shop floor itself -- as yet. And, somewhat depressingly, no change in underlying trading performance."

According to Springham, however, "[W]e do sense more subtle, evolutionary change in the business, be that through a series of Big Data initiatives or strategic bolt-on acquisitions to the e-commerce business. In this regard, it is probably misguided to overly fixate on the latest comp figures. Walmart is playing a long game, such that when comp growth does eventually return, it will prove sustainable."

Sounding a cautionary note, he added: "But the U.S. competitive landscape isn't getting any easier. Dollar store consolidation, an enlarged Walgreens and a potentially re-energized Target under new management will make for a much more challenging competitor set going forward."

As for the International division, Springham observed that it was still working "to get its house in order in all of its overseas businesses. The measures required vary by geography and are at different stages of implementation." He expressed the hope, though, that the division's positive trend in operating income growth would continue.

EPS Forecast Adjusted Downward

Walmart's forecasted earnings per share from continuing operations for the full year are expected to range between $4.90 and $5.15, in comparison with previous guidance of $5.10 to $5.45. This assumes a range for third -quarter earnings per share of $1.10 to $1.20.

"Our guidance includes incremental investments in e-commerce and headwinds from higher health care costs in the U.S. than previously estimated," explained Walmart EVP and CFO Charles Holley. "This guidance also assumes the effective tax rate will be around 34 percent for the third quarter. The annual effective tax rate is projected to be between 32 percent and 34 percent. The actual rate will depend on a number of factors, including our performance, discrete items and pending U.S. Congressional actions regarding the extension of certain tax legislation."

For the 13-week period ending Oct. 31, 2014, Walmart U.S. expects comps to be relatively flat. Last year, Walmart's comps dipped 0.3 percent for the 13-week period ended Oct. 25, 2013. Sam's Club expects comps, excluding fuel, for the 13-week period ending Oct. 31 to be slightly positive. Last year, the division's comps, excluding fuel, edged up 1.1 percent for the 13-week period ended Oct. 25, 2013.

Walmart operates 11,053 stores under 71 banners in 27 countries, and e-commerce websites in 11 countries.