Walmart Inc.’s strong third-quarter results bested Wall Street estimates, and strong October sales position the mass merchant for a solid fourth quarter and holiday season.
In a Nutshell: President and CEO Doug McMillon noted consumers’ accelerating shift to e-commerce during Tuesday’s quarterly conference call.
“Our e-commerce and omni-penetration continues to rise,” he said, adding that the shift to online has been “accelerating the trend by two or three years.” McMillon doesn’t expect that to change even after the Covid pandemic is over.
“Our customers want to be served in a number of ways, and we’re poised to save them money,” he added.
McMillon expressed optimism about 2021. “The back half should start to look more normal. [We see] momentum in a number of key areas. We’re in control of our destiny—we know what customers want,” he told investors.
Walmart has been focusing on improving in-stock inventory levels, which McMillon said is better than what it was in the prior second quarter, and now 2,500 stores are helping to fulfill online orders. “We can quickly flex this number during holiday,” he said, noting that the ability to do so would help ease the pressure on e-commerce fulfillment centers.
Noting the current political climate, McMillon said it’s “imperative that elected officials in Washington work together” to get the help that many small businesses need. He also congratulated President-elect Joe Biden on his election victory and said Walmart looks forward to “working with both houses of Congress.”
McMillon admitted that supply chain are stressed by demand, depending on where consumers live and the coronavirus infections rate in their area.
In the third quarter, Walmart saw strong increases and repeat rates on orders, said chief financial officer Brett Biggs. While the delayed back-to-school season drove a slow start to the third quarter, Biggs said “sales picked up in September, and momentum picked up in the third quarter.” Home and sporting goods performed well, while grocery sales were also strong. “We continued to see trip consolidation and bigger baskets in [the third quarter],” he added.
Walmart is making meaningful progress in getting higher in-stock levels for some categories for the fourth quarter. “We expect a good holiday season,” Biggs told analysts.
Judith McKenna, president and CEO of Walmart International, noted that the recent divestitures in Argentina and Japan were completely in line with the company’s the strategy based on strong local businesses powered by Walmart. “We continue to focus on our priority markets in India, China, Mexico and Canada,” she said.
Net Sales: Total revenues for the quarter ended Oct. 31 rose 5.2 percent to $134.7 billion from $128.0 billion, which included a net sales gain of 5.3 percent to $133.8 billion from $127.0 billion.
For Walmart U.S. operations, net sales rose 6.2 percent to $88.4 billion from $83.2 billion as comparable sales, excluding fuel, rose 6.4 percent. Walmart International saw net sales rise 1.3 percent to $29.6 billion from $29.2 billion. Sales at Sam’s Club was up 8.3 percent to $15.8 billion from $14.6 billion, and comp sales were up 11.1 percent, excluding fuel.
Apparel, online sales and marketplace all performed well in the quarter.
“Walmart posted yet another in a long string of stellar quarters, with performance strong across all facets, resulting in operating income up a substantial 22-plus percent despite Covid and online-related costs,” Charlie O’ Shea, Moody’s vice president and senior credit officer, said. “Online continued its explosive growth, with 79 percent impressive especially in light of the strength in comparable store sales at both US stores and Sam’s Club, continuing to reflect the effectiveness of Walmart’s multi-channel strategy.”
He added that with holiday in full swing, “[W]e expect Walmart to continue its tradition of being one of the true pace-setters, and the efficiency with which it has integrated its two channels will serve it well as promotional activity kicks up.”
For the nine months, total revenues rose 6.5 percent to $407.1 billion from $382.3 billion, which included a 6.6 percent increase in net sales to $404.2 billion from $379.3 billion.
Earnings: Net income jumped 56.2 percent to $5.14 billion, or $1.80 a diluted share, from $3.29 billion, or $1.15, in the year-ago quarter. On an adjusted basis, diluted earnings per share was $1.34.
Wall Street was expecting adjusted diluted EPS of $1.18 on revenue of $132.23 billion.
For the nine months, net income was up 45.3 percent to $15.6 billion, or $5.48 a diluted share, from $10.7 billion, or $3.74, in the same year-ago period.
CEO’s Take: “This was another strong quarter on the top and bottom line. Our associates continue to impress during this challenging year. They are working together to serve customers and communities in new, relevant ways and we’re very proud of them. We think these new customer behaviors will largely persist and we’re well positioned to serve customers with the value and experience they’re looking for,” McMillon said.