Wal-Mart ( WMT ) has had a fairly strong fiscal 2017 (ending January 2017) so far, as the company's 2017 performance thus far has been mostly above its guidance and market expectations. In fact, the retailer's stock is now trading almost 45% higher than its price at the beginning of the year. In the first nine months of fiscal 2017, the retailer's total revenue increased 3% year-over-year (y-o-y) to $364 billion, driven by 3% y-o-y growth in the U.S. business. Wal-Mart's net growth was positively impacted by a 2% overall comparable sales growth, 0.3% year-over-year growth in consolidated retail square feet and sales from recent acquisitions.
Wal-Mart's operating income declined 4% y-o-y in the first three quarters, primarily due to investments in technology and a rise in employee wages. The company's net income declined 22% y-o-y to $8 billion in the same period, translating into earnings of $2.54 per share. Wal-Mart also generated a total of $10 billion of free cash flow in the first nine months of the year, down 18% y-o-y, due to the timing of payments and an increase in incentive payments, as well as difficult comparison to last year's disciplined working capital management.
Our $93 price estimate for Wal-Mart's stock is slightly below the current market price.
Solid Growth In E-Commerce Space
E-commerce currently accounts for only around 3% of Wal-Mart's total revenue, but the company has been emphasizing e-commerce growth going forward, in order to remain competitive in the Amazon ( AMZN ) dominated retail market. The company bought Jet.com for $3 billion last year, which helped it improve its e-commerce capabilities significantly. In addition, the company expanded the number of locations for shoppers to pick up online orders, making the process more convenient.
Wal-Mart's e-commerce growth accelerated to 60%+ y-o-y levels in the first two quarters before declining slightly in Q3. The majority of this growth was organic through Walmart.com, including online grocery, which is growing quickly. Given that Wal-Mart is the biggest player in the U.S. market, capturing 17.3% (as of 2016) of U.S. food and beverage retail sales, the company is looking to expand its online selection, mainly by inviting more retailers and consumer brands to sell on Walmart.com and its international e-commerce sites. The company's growth was also likely boosted by the company's recent acquisitions - Hayneedle, Moosejaw, Shoebuy and Bonobos - which have provided the company with a diverse product portfolio in some high-margin categories like shoes and apparel, along with increased digital marketing expertise, eventually helping it face growing competition from internet retailers. From an online marketplace perspective, Wal-Mart now covers more than 70 million SKUs to date, up from a mere 7 million SKUs in 2015.
According to MasterCard SpendingPulse, 2017 is expected to see the strongest holiday season sales growth since 2010, primarily driven by e-commerce sales, potentially surpassing 5% y-o-y growth . In fact, the retail sales between Nov. 1 to Dec. 11 grew strongly at 5.4% y-o-y, indicating that the retail industry benefited from Thanksgiving weekend and Cyber Monday sales. In terms of general merchandise store sales in the U.S., the category grew 4% in November 2017 (while this figure declined 1.4% y-o-y in November 2016). Based on these factors, we expect Wal-Mart to benefit from the positive holiday sales momentum this year. Wal-Mart expects comparable sales growth for both Wal-Mart U.S. and Sam's Club (ex. fuel) to range between 1.5% to 2.0% in the fourth quarter. For the full year fiscal 2018, the company now expects its adjusted EPS to range between $4.38 to $4.46, compared to previous guidance of $4.30 to $4.40.
Please refer to our complete analysis for Wal-Mart
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