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General merchandise retailer, Wal-Mart Stores, (WMT - Free Wal-Mart Stock Report) reported marginally better-than-expected results for the fiscal first quarter (years end January 31st). Total revenue rose 2.5% to $118.8 billion, slightly higher than our $118.0 billion estimate. Earnings per share of $1.00 came in at the high end of the $0.90-$1.00 guidance range, and surpassed our call by $0.03. Encouragingly, this marked the first quarterly EPS increase in more than two years.

Walmart U.S. saw slower sales at the beginning of the period, owing to delays in federal tax refund checks. However, sales rebounded throughout the quarter, with all store formats recording growth. The all-important same-store sales metric ended up growing a solid 1.4%. A 1.5% rise in traffic was responsible for the entire gain, as the average transaction amount was down slightly due to lower sales of big ticket items and continued price investment (i.e. lower prices). This was the tenth consecutive quarter of positive comp traffic. A lack of food deflation resulted in the strongest comp for the grocery category in more than three years. Too, Sam's Club's same-store sales, excluding fuel, grew 1.6%.

There were some encouraging developments on the e-commerce front. Customers no longer have to pay a membership fee to get two-day shipping on orders over $35. Further, the company launched the Pickup Discount program, which sells online-only products for a discount, if shoppers pick them up at nearby stores. Finally, WMT made two small, but well known e-commerce acquisitions in the quarter, Moosejaw (outdoor gear) and ModCloth (apparel). The new businesses should expand online selections and improve "category expertise."

The International unit grew sales less than 1%, due to some divestitures and timing related problems. Bright spots continued to be Walmex, with its 4% comp, and Canada, which notched its twelfth consecutive quarter of positive same-store sales. Overall, seven of eleven international markets were positive despite unfavorable timing for the Easter holiday and one less operating day.

Management provided fiscal second-quarter earnings per share guidance of $1.00-$1.08. Thus, we are leaving intact our $1.07 per share call.

This was a solid earnings report for Wal-Mart, albeit somewhat predictable. Consistent same-store sales and traffic gains are promising, especially considering the difficult retail environment. We like the aggressive and innovative e-commerce strategy, and think investments will pay off long term. Overall, these shares are suitable for conservative buy-and-hold investors.

About The Company:Wal-Mart Stores, Inc. is the world’s largest retailer, operating 3,522 supercenters (includes sizable grocery departments), 415 discount stores, 660 Sam’s Clubs, and 735 Neighborhood Markets in the U.S., plus 6,363 foreign stores (mainly in Latin America, with the balance in Asia, Canada, and the U.K.) for total square footage of 1.164 billion (as of 1/31/17). Most stores are owned and are within 400 miles of an expanding network of distribution centers. Groceries accounted for 56% of U.S. sales, while sales per square foot were about $420.

At the time of this article’s writing, the author did not have positions in any of the companies mentioned.