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General merchandise retailer Wal-Mart Stores (WMT Free Wal-Mart Stock Report) has issued better-than-expected results for the October quarter. Revenue of $123.2 billion rose 4.2% year over year (3.8% excluding a currency benefit), well above our 2.3% estimate. Earnings per share of $1.00 eclipsed our $0.97 call and the company's $0.90-$0.98 guidance range. The stock rose nicely to an all-time high on the news.

Domestic same-store sales increased 2.7%, the best quarterly comparison in more than eight years. Hurricane-related sales did contribute around 30 to 50 basis points, though. Higher traffic added 150 basis points to the comp, and e-commerce sales were responsible for 80 basis points of the advance. Nearly all categories experience growth, but the food business stood out, registering the best quarterly comp in nearly six years. Shelf stocking and inventory management continue to improve, with inventory at stores decreasing 3.5%. Sam's club also put forth a good performance, with comp-sales rising 2.8% on a 3.6% jump in traffic.

The e-commerce business continued to post impressive growth, as sales were up 50%. Online shoppers are responding well to an expanded product assortment, online grocery, and free two-day shipping. Wal-Mart.com was responsible for the bulk of the advance, but the company's newly acquired stable of trendy brands also did well. Notably, a mix shift toward less-profitable e-commerce sales caused the consolidated gross margin to fall 29 basis points.

The company is making progress on its omnichannel initiatives. Online grocery is now available in 1,100 stores, and WMT plans to roll out the popular service to another 1,000 next year. Wal-Mart launched Mobile Express Returns for customers to quickly return online purchases via the mobile app and designated in-store drop-off locations. The company is also testing automated pickup towers and same-day grocery delivery in major metropolitan areas. 

Meanwhile, management reiterated its commitment to opening fewer stores in the United States. Instead, more capital will be allocated to e-commerce, technology, supply-chain improvements, and store remodels.

The International business saw ten of eleven markets post positive comp sales. Constant-currency sales grew 2.5%, and the top line was up 4.1% in local currency terms. Walmex stood out, with same-store sales growth of 7%. Canadian customers are responding well to price reductions, which are resulting in market share gains there. China had sales growth of 4%, thanks to improvements in the merchandise assortment.

The company is expecting a solid performance this holiday season. Domestic comp sales should increase between 1.5% and 2.0%. Too, management raised the full-year adjusted EPS range to $4.38-$4.46, a 1.6% increase over the prior range at the midpoints. In response, we are increasing our estimate by a dime to $4.45. 

There was a lot for investors to hang their hats on from this earnings report. The company's efforts to improve the in-store and online shopping experiences are paying off in spades. Although the shares are up sharply year to date, we think they are worthy of consideration by conservative accounts seeking some level of current income.

About The CompanyWal-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.