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General merchandise retailer Walmart Inc. (WMT Free Walmart Stock Report) reported generally solid results for the April quarter. Revenue increased 2.7%, year over year, on a constant-currency basis, slightly better than our 2.6% growth forecast. Meanwhile, earnings per share rose a healthy 14%.

The core Walmart U.S. business had a good same-store sales growth performance of 2.1%. A higher average transaction amount was responsible for two-thirds of the advance, while traffic drove the remainder. Management noted that sales were trending higher through early April, but general merchandise revenue and traffic were somewhat negatively impacted by unseasonably cool weather. Merchandising improvements aiming to make products more attractive and easier to access have been helping the fresh food, deli, and bakery departments. Walmart also introduced new apparel brands with improved design, quality, and value. The quarter marked the 12th in a row that in-store inventory was reduced, which is helping efficiency. A higher starting hourly wage rate came into effect in February, but because WMT is operating leaner, it was still able to leverage expenses.

The e-commerce business had another stellar quarter with 33% growth. Strength from Walmart.com and online grocery led the way. Redesigns for the website and app were recently launched. The new store page will include a Lord & Taylor section, allowing customers to shop a broader selection of premium brands. We view this as an effective strategy. Too, the company is on track to increase online grocery pickup by around 1,000 stores this year, to reach more than 2,100 locations throughout the U.S. Walmart will also roll out grocery delivery to about 800 stores by yearend, providing coverage for 40% of the population. Overall, we expect e-commerce sales to grow approximately 40% for the full year.

Sam's Club's comps excluding fuel were up 3.8%, largely from higher traffic. A decision to remove tobacco from certain clubs will remain a headwind throughout the year, and reduced the first quarter comp by 140 basis points.

Elsewhere, the International business increased its top line by 4.5% in constant-currency terms. Walmex was the standout region, with 9.5% growth. Eight of the eleven markets WMT operates in overseas grew sales during the quarter.

In its ongoing effort to wrestle global market share away from Amazon, the company announced an agreement to purchase a 77% stake in Flipkart, the leading Indian e-commerce platform. At a price tag of $16 billion, the deal would be the largest in company history, or roughly 5 times what it paid for the second-largest purchase, Jet.com. Although somewhat risky, we think this move makes perfect sense for Walmart, and believe that it should lead to strong growth in the years to come. The purchase, and continued investment in the new business, is expected to shave $0.25-$0.30 from the bottom line this year, and likely around double that next year.

We think this was a solid report for Walmart overall. We continue to recommend these shares to investors seeking long-term price appreciation potential. The investment community was not as happy, though, sending the stock modestly lower in today's morning trading session.

About The Company:Wal-Mart 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.