Stocks sank into negative territory on Tuesday, but recovered some ground at the end of the day. The Dow Jones Industrial Average (DJINDICES:^DJI) lost a percentage point and the S&P 500 (SNPINDEX:^GSPC) fell a bit less.
Today's stock market
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Consumer staples were the weakest sector today, with the Consumer Staples Select Sector SPDR ETF (NYSEMKT:XLP) falling 2.3%. Gold also tumbled on a stronger dollar; the VanEck Vectors Gold Miners ETF (NYSEMKT:GDX) lost 2.8%.
Walmart reports disappointing e-commerce sales, profit
Walmart stock fell 10.2% after the company reported fiscal fourth-quarter results that beat expectations for sales but missed on the bottom line, and issued guidance below the analyst consensus. Revenue grew 4.1% to $136.3 billion, compared with expectations of $135 billion. Adjusted earnings per share grew 2.3% to $1.33, $0.04 below estimates. Guidance for fiscal 2019 adjusted EPS was $4.75 to $5.00. Analysts had been modeling $4.97 in per-share earnings..
Physical store sales were relatively strong. Walmart U.S. comparable-store sales increased 2.6% on a 1.6% bump in traffic. Sam's Club comp sales grew 2.4% on a 4.3% traffic jump. Nine of 11 international markets had positive comp growth.
Where Walmart created some concern with analysts on the call was in comments about the e-commerce business. Sales growth was 23%, marking a deceleration from 50% growth in the previous quarter. Some slowdown was expected, since the results lapped the first full quarter of contribution from the Jet acquisition. But company officials said that the company experienced some "operational difficulties" that contributed to the e-commerce slowdown.
Gross margin declined 61 basis points, which also contributed to analyst concerns. Two-thirds of the decline was due to "price investments" and was affected by the shift to e-commerce.
That Walmart stumbled a bit trying to deal with rapid e-commerce growth is perhaps understandable, but investors focused on the uncertainties around online sales growth and margins, rather than the better-than-expected performance of physical stores.
DineEquity jumps on signs of a turnaround
DineEquity, which said it was changing its name to Dine Brands Global today, announced quarterly results that exceeded expectations, and shares soared 16%. The parent company of Applebee's and IHOP reported that revenue fell 3.5% to $149 million and adjusted earnings per share fell 46% to $0.74. Analysts were expecting the company to earn $0.69 per share on sales of $148 million. Dine Brands also cut its quarterly dividend from $0.97 to $0.63.
The good news was that sales at the company's restaurants seem to be stabilizing after recent declines. Applebee's domestic comparable sales increased 1.3% and IHOP comps fell 0.4%. Last quarter, Applebee comps dropped 7.7% and IHOP had a 3.2% comp sales decline.
Looking forward, Dine Brands expects the improvement to continue. It guided to comp sales growth of flat to 3% for both chains. Adjusted EPS for fiscal 2018 is now expected to fall between $4.95 and $5.25, far exceeding the $4.41 Wall Street had been expecting and more than the $4.15 per share earned in fiscal 2017.
Signs of a return to growth were certainly welcomed by investors, and the increased cash flow from improving performance and reduced dividend requirement opens up new growth possibilities for the company. CEO Stephen Joyce stated in the conference call that management is looking for a small acquisition that could be grown into a national brand, and a deal could happen in late 2018 or early 2019.