May 18, 2017
Big-box retailer Wal-Mart Stores, Inc. (WMT) snagged headlines this morning when its first-quarter earnings report revealed blowout online sales. The company's significant jump in online sales took most of Wall Street by surprise, and many are now wondering if Wal-Mart can actually challenge online retail giant, Amazon.com, Inc. (AMZN).
First, it's no secret that Wal-Mart has been ramping up its online presence. The company has scooped up specialty retail websites and matched free shipping deals. More than 50 million items are now offered through Wal-Mart's website, up from 10 million in the first quarter of 2016. And these efforts are clearly paying off, as Wal-Mart reported that online sales surged 63% in the first quarter.
Now, that's the headline that's capturing the Street's attention and driving shares to new highs this morning. But to get the real story, you need to dig a little deeper into Wal-Mart's financials.
During the first quarter, Wal-Mart's total sales increased 1.4% year-over-year to $117.5 billion, which missed analysts' estimate for $117.7 billion by a hair. Operating income slipped 0.7% year-over-year to $5.24 billion. Earnings per share increased 2% year-over-year to $1, topping estimates for $0.96 per share by 4.2%.
Looking ahead to the second quarter, Wal-Mart is expecting earnings per share between $1 and $1.08, which is in line with analysts' estimates for $1.07 per share. However, this represents a 6.5% decline to a 0.93% increase in earnings per share.
Clearly, Wal-Mart's first-quarter earnings report was a strong one. And the company's efforts to boost online sales and increase store traffic is working. But I'm not convinced that Wal-Mart is going to be eating Amazon's lunch any time soon.
In Amazon's first quarter, the company reported that sales increased 23% year-over-year to $35.7 billion. Earnings jumped 41% year-over-year to $724 million, or $1.48 per share. And for the second quarter, Amazon is forecasting between 16% and 24% annual sales growth. Clearly, Wal-Mart's increase in online sales isn't hurting Amazon's business right now.
Both WMT and AMZN receive B-ratings in Portfolio Grader. But given that Amazon still has double-digit forecasted sales growth, my top pick in the online retail sales market remains AMZN.