Source: Wal-Mart Stores

Wal-Mart Stores (NYSE:WMT) reported fiscal 2016 third quarter results on Nov. 17. The retail titan saw its earnings fall as it continues to spend heavily to improve its technology and in-store customer experience, but rising comps in its U.S. stores could be a sign that these investments are beginning to resonate with customers.

The raw numbers

 

Q3 2016

Q3 2015

YoY Growth

Revenue

$117.408 billion

$119.001 billion

(1.3%)

Net Income

$3.304 billion

$3.711 billion

(11%)

Earnings Per Share

$1.03

$1.15

(10.4%)

Data source: Wal-Mart Stores Q3 2015 earnings press release

What happened with Wal-Mart Stores this quarter?
Total revenue fell 1.3% to $117.4 billion, as foreign exchange rate movements continue to dampen results. On a constant currency basis, total revenue rose 2.8% to $122.4 billion.

Yet U.S. comparable-store sales grew 1.5% -- Wal-Mart's fifth consecutive quarter of positive comps -- as traffic increased 1.7%. The performance of Wal-Mart's smaller-format Neighborhood Market stores was particularly strong, with comps increasing 8%. These rising comps, combined with new store openings, helped fuel a 3.8% year-over-year increase in Wal-Mart's U.S. sales to $72.7 billion.

However, the U.S. revenue gains were offset by a 11.4% decline, to $29.8 billion, in Wal-Mart's international sales, which saw a negative impact of $4.9 billion from foreign currency exchange fluctuations. On a constant currency basis, Wal-Mart's international sales rose $3.2% to $34.7 billion.

Sales at Sam's Club declined 2.2% to $14.1 billion but increased 1.6% when excluding the effects of lower fuel prices.

In addition, Wal-Mart's online initiatives appear to be bearing fruit -- global e-commerce sales increased 10% on a constant currency basis.

However, Wal-Mart's "investments in people and technology" continue to take a toll on profits. Consolidated operating income declined 8.8% (and 5.4% on a constant currency basis) to $5.7 billion. And third quarter earnings-per-share declined 10.4% to $1.03.

Cash flow and capital returns
Despite the tepid sales and lower profits, Wal-Mart continues to generate enormous amounts of cash. Operating and free cash flow exceeded $15 billion and $6.7 billion, respectively, during the first three quarters of fiscal 2016.

That allowed Wal-Mart to pay $1.6 billion in dividends and repurchase six million shares of its stock for $437 million in the third quarter. Even better, management is committed to returning a larger portion of Wal-Mart's cash to shareholders in the years ahead, as evidenced by the company's recently announced $20 billion share repurchase program.

Looking forward
For the fourth quarter, Wal-Mart expects to earn between $1.40 and $1.55 per share. Management also narrowed its fiscal 2016 full-year earnings-per-share guidance to between $4.50 and $4.65, compared to its previous forecast of $4.40 to $4.70. 

"Strong traffic and our fifth consecutive quarter of positive comps in Wal-Mart U.S. stores show we are taking the right steps to win with customers," said CEO Doug McMillon. "Although we still have work to do, we are positioning for sustainable growth through investments in people and technology to deliver a seamless shopping experience at scale."

Joe Tenebruso has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.