General merchandise retailer Walmart (WMT Free Walmart Stock Report) reported mostly positive results for the October quarter. Investors have largely shrugged off the news, however, and the shares are down a bit today.

Total revenue of $124.9 billion increased 1.4% year over year (2.4% on a constant-currency basis), slightly worse than our 1.6% estimate. This likely prevented the shares from trading higher after the release. Adjusted earnings per share of $1.08 were better than our $1.02 call, and the year-earlier tally of $1.00.

Walmart U.S. continues to post solid growth, with same-store sales excluding fuel up 3.4% despite facing a difficult comparison. Store traffic and tickets were up 1.2% and 2.2%, respectively. Still, the gross margin rate declined 28 basis points due to lower pricing, higher transportation expenses, and a mix shift toward less-profitable e-commerce sales. 

Encouragingly, the online business grew sales an impressive 43%, and remains on track to deliver around 40% growth for the full year. A larger product assortment and more efficient delivery is helping boost customer satisfaction. Too, the omnichannel experience is getting better now that 2,100 grocery pickup locations are functional. The company also plans to have 700 pickup towers by the end of this fiscal year, and cover 40% of the U.S. population with home delivery through 800 stores. 

On August 18th, WMT closed on the unprecedented $16 billion purchase of a 77% stake in India's leading online retailer Flipkart. We like the combination, as it provides ample exposure to that country's expanding middle class and strong GDP growth. Still, business integration costs will likely reduce this year's earnings by $0.25-$0.30 and next year's by $0.60. 

The company appears prepared for the holiday season. It hopes to gain market share from the recently shuttered retail chain Toys `R' Us by adding 30% more toys in-store and 40% more online versus last year. Too, a new checkout experience dubbed "Check Out with Me", was launched in time for the season; it lets shoppers bypass checkout lines and pay for items in areas of the store where they're shopping. 

Other initiatives unrelated to the holidays include a partnership with Jet.com and Blue Apron to offer on-demand meal kits for delivery, an aggressive rollout of grocery pickup and delivery in the U.S., testing different solutions for last mile delivery, and increasing automation and robotics in the supply chain and across stores.

Elsewhere, Sam's Club continues to post strong same-store sales, which grew 5.7% in the quarter. Price investment and an improved assortment have driven results. Further, International comp sales were positive in nine of 10 markets, led by a 6.3% gain in Mexico. Nonetheless, net sales still declined 2.6% (increased 1.6% in constant-currency terms).

The third-quarter results prompted management to raise fiscal 2018 adjusted guidance range from $4.65-$4.80 to $4.75-$4.85 (1.6% at the two midpoints). Too, Walmart U.S. comp sales excluding fuel are expected to grow “at least 3% for the year,” versus the prior “around 3%” estimation. 

We think this was a solid overall showing from the retail giant. Strong underlying demand, the improving financial condition of its core customer group, and a cutting-edge omnichannel strategy should ensure momentum continues. Still, the shares are less attractive from a value perspective than they have been in recent history.

About The Company:Walmart 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.