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Walmart Earnings: 4 Happy Surprises for Investors -- and 1 Disappointment

By Demitri Kalogeropoulos - May 17, 2019 at 6:15PM

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Highlights from the retailing titan's first-quarter earnings report.

Walmart (WMT -7.23%) investors had some good reasons to feel optimistic heading into the retailing giant's first-quarter report. The company had announced three consecutive quarters of robust sales growth thanks to strong demand in both its online and physical store selling channels. These wins implied that management's multichannel retailing strategy is the right move, even if that initiative is pinching profits over the short term.

On Thursday, Walmart had mostly good news to report on that profit picture and around its sales growth trends. Let's take a look at a few of the biggest pleasant surprises.

A man buying groceries at the supermarket

Image source: Getty Images.

1. Sales growth of over 3%

Comparable-store sales rose 3.4% to mark the fourth straight quarter of over-3% growth. That increase passed the top end of the guidance for the year that management issued back in February. Comps growth included a significant contribution from the online sales channel, but the biggest driver was rising spending. Average sales jumped 2.3%, and customer traffic across stores and the online channel edged up 1.1%.

2. Profit growth of over 5%

Profitability has been a weak spot in Walmart's last few earnings reports, especially within the e-commerce segment. Management admitted early in the year that the chain needed to make "more progress to improve" margins, and they told investors that the addition of higher-margin categories like home furnishings should help. Positive results showed up almost immediately, and the digital channel boosted profitability this quarter. That helped operating profit jump 5.5%, compared to a 2.3% increase over the prior 12 months.

3. Sam's Club membership record

The Sam's Club division saw robust growth, with comps rising 3% after accounting for fuel price shifts and reduced tobacco product sales. Walmart executives were even happier to see membership signup and renewal rates improve so that the total subscriber count has now surpassed its level before the company closed 10% of its store base.

4. $3.7 billion of direct shareholder returns

CEO Doug McMillon and his team ramped up their stock repurchase spending following the suspension they announced in conjunction with its expensive acquisition of Flipkart. As a result, stock buybacks roughly tripled to over $2 billion. Add in the quarterly dividend payout of $1.5 billion, and Walmart returned just under $4 billion to investors this quarter compared to $2.1 billion in the year-ago period.

That was the good news to come out of the report. Unfortunately, all the news wasn't good.

International growth of just 1%

Fitting on the negative side of the ledger was Walmart's international business, which only managed to boost currency-adjusted sales by 1.2%. The chain saw healthy demand in most of its key markets outside the U.S., but those gains were offset by struggles in Canada, the U.K., and China. "We're managing through political and economic headwinds in several of our international markets," CFO Brett Biggs said in conference call with investors, "which contributed to a bit weaker results this quarter than we've had recently."

Looking ahead

Walmart didn't update any of its full-year sales or profit targets to reflect the latest demand trends. That's consistent with its practice of waiting until after the second quarter to change financial predictions. Assuming the current trends hold, though, the retailer's improving growth in the U.S. could be enough to spur an upgrade to the fiscal outlook in a few months.

In the meantime, it's becoming clearer that the chain's aggressive investments ($11 billion of capital spending this year, up from $10 billion in fiscal 2019) are paying off for investors by supporting stronger growth.

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