Why Walmart's In-Store Sales Were The Real Key To Its Earnings Beat

Walmart (NYSE:WMT) shares surged over 9% to reach a new all-time high on Thursday after the company reported solid third-quarter results, which were driven in large part by the strength of its core in-store business.

The Arkansas-based retailer posted $123.18 billion in quarterly revenues and adjusted EPS of $1.00 per share, which both beat Wall Street expectations. Walmart also raised its full-year earnings guidance to help its stock price hit a new intraday trading high of $98.01 per share (also read: Walmart (WMT) Stock Gains on Solid Q3 Earnings & Raised View).

Investors were clearly pleased with Walmart’s Q3 gains, and many were likely excited by the fact that the company’s online sales jumped 50%—driven by acquisitions and a greater amount of offerings. This e-commerce growth is needed to help Walmart try to compete against Amazon (NASDAQ:AMZN) , but online sales only accounted for $14 billion in revenues.

With that said, many investors must have loved what they saw from the rest of Walmart’s third-quarter, as few would place their hopes in a business segment that currently amounts to roughly 3% of total sales.

Core Business

Walmart’s domestic sales popped 4.3% to $77.72 billion. The company’s international revenues jumped 4.1% to $29.55 billion, while Walmart’s bulk-buying outlet Sam’s Club saw its sales climb 4.4% to $14.86 billion.

U.S. same-store sales rose for the 13th-consecutive quarter, and Walmart also delivered its biggest year-over-year sales growth at established domestic stores in over eight years.

Walmart brand comparable store sales also rose, fueled in large part by increased food sales. Walmart noted that food sales had their best quarter in almost six years.

The retail giant’s grocery business continues to help bring customers to its stores at a time when the likes of Target (NYSE:TGT) and Amazon are adding to their food offerings.

Some of these grocery gains were attributed to hurricane-related sales. But food sales were also spurred by Walmart’s improved online grocery business—with the company set to double the number of curbside grocery pick-up locations to 2,000 by next year.

"Market share in the critical food category continues to grow as the expansion of its buy-online/pick-up in store capability is driving increased sales, and the focus on improving working capital continues," Moody analyst Charlie O'Shea wrote in a note to clients.

"As usual, we expect Walmart to largely set the tone on multiple fronts and in multiple categories for the Holiday season."

Bottom Line

Once written off by some as archaic, Walmart proved it is more than capable of competing in this shifting retail environment where Amazon and e-commerce powers generate most of the headlines.

Walmart investors should also be pleased to see that one of the world’s biggest retailers is committed to improving its core in-store business while it quickly bolsters its e-commerce portfolio, with eyes on the future.

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