General merchandise retailer Walmart Inc. (WMT Free Walmart Stock Report) reported solid results for its fiscal first quarter. The top line grew 2.5% year over year to $125.8 billion in constant-currency terms. Earnings per share of $1.13 were well ahead of our estimate of $1.02, but fell short of last year's $1.14, as the company continues to invest in infrastructure, e-commerce, and wages.

Walmart U.S. had a strong same-store sales performance, with that important metric rising 3.4%. The growth came despite SNAP (food stamp benefits) being pulled forward in the prior quarter. That figure included e-commerce growth of 37%, which is in line with its performance over the last several years. The number of transactions increased 1.1%, while the average ticket was 2.3% higher. The strong comps helped Walmart gain market share in food and consumables. Notably, Walmart's private brands as a percentage of all food sales grew 156 basis points. The company also pointed out that it will be bringing premium Angus beef to around 500 stores by early next year. Further, management revealed some fears by reporting food inflation remained negligible during the quarter. 

Meanwhile, Sam's Club saw comps rise a solid 3.0%. International comps were positive in seven markets, and net sales increased 1.2% in constant currency terms. Still, reported net sales were down 4.9%, as foreign currency translation caused a $1.8 billion headwind. As far as tariffs are concerned, the company will continue to actively manage pricing and margins and execute mitigation strategies.

Walmart now has 2,450 stores in the U.S. with grocery pickup, enabling them to provide same-day grocery delivery in nearly 1,000 locations at quarter end. The company expects 1,600 stores to offer grocery pickup by year-end. Too, by the end of 2019, 75% of the country will be covered by next-day delivery for much of Walmart.com's inventory. 

The company sees opportunity to increase its advertising presence. Walmart recently bought Silicon Valley startup Polymorph Labs, whose technology should make it easier for brands to advertise with Walmart, while also delivering more relevant digital ads to customers. 

Walmart faces tougher sales comparison in the fiscal second quarter, due to the timing of weather-related benefits last year. Too, currency is expected to remain a headwind during the period. 

Walmart continues to post strong underlying growth, much of which is being supported by a flourishing e-commerce operation. Although the stock is not cheap, we think conservative investors should still consider this high-quality offering.

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.