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Why Is Walmart (WMT) Down 6.6% Since Its Last Earnings Report?
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A month has gone by since the last earnings report for Walmart Inc. (WMT - Free Report) . Shares have lost about 6.6% in that time frame.
Will the recent negative trend continue leading up to its next earnings release, or is WMT due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Walmart’s Q4 Earnings Miss, Comps Up Again
Walmart posted fourth-quarter fiscal 2018 results, wherein adjusted earnings of $1.33 per share missed the Zacks Consensus Estimate of $1.36. Nonetheless, adjusted earnings grew 2.3% from $1.30 reported in the year-ago period.
Total revenues advanced 4.1% to $136.3 billion and also surpassed the Zacks Consensus Estimate of nearly $135 billion. The upside was driven by strength at all three businesses. On a currency-neutral basis, total revenues advanced 3.1% to $135.1 billion.
Consolidated operating income plunged 28% to $4.5 billion, whereas the operating income margin contracted 140 basis points to 3.3%. On a constant currency basis, operating income declined 29.3% to $4.4 billion.
Segment Details
Walmart U.S.: The segment recorded net sales growth of 3.4% to $86.6 billion in the quarter. U.S. comparable-store sales (comps), excluding fuel, jumped 2.6%, compared with 1.8% growth in the prior-year quarter. Notably, this was the 14th consecutive quarter of positive comps. While comp traffic improved 1.6%, average ticket inched up 1% in the quarter. Further, on a two-year stack basis, comps grew 4.4% — marking the company’s best performance in eight years.
Moreover, e-commerce sales positively impacted quarterly comp sales at Walmart U.S. by 60 bps. Notably, e-commerce sales in the segment jumped 23% (much lower than50% recorded in the previous quarter), while GMV surged 24%. Operating income at the segment dipped 0.9% to over $5 billion.
Walmart International: Segment net sales went up by 6.7% to $33.1 billion. On a currency-neutral basis, net sales improved 2.8% to $31.9 billion. However, operating income declined 10.9% to $1.3 billion. On a constant currency basis, it slumped 16.1%. Notably nine out 11 markets recorded positive comps, which included the company’s four biggest markets.
Sam’s Club: The segment, which comprises membership warehouse clubs, posted net sales growth of 3.3% to $15.5 billion. Sam’s Club comps, excluding fuel, rose 2.4%, in line with growth recorded in the prior-year quarter.
Comp traffic grew 4.3%, while ticket dipped 1.9%. E-commerce sales positively impacted comps by approximately 80 basis points in the quarter. The segment generated an operating loss of $0.3 million, as against an income of $0.4 million reported in the year-ago period.
Notably, U.S. comps for fiscal 2018 climbed 2.1%, whereas Walmart U.S. e-commerce sales soared 44%.
Other Financial Updates
Walmart ended the quarter with cash and cash equivalents of roughly $6.8 billion, long-term debt of nearly $30 billion, long-term capital lease and financing obligations of $6.8 billion and shareholders’ equity (excluding noncontrolling interest) of $77.9 billion.
In fiscal 2018, Walmart generated cash flow from operations of $28.3 billion and incurred capital expenditures of $10.1 billion, resulting in free cash flow of $18.3 billion. In fiscal 2019, the company anticipates capital expenditures to be nearly $11 billion.
Walmart paid $6.1 billion in dividends and made share buybacks worth $8.3 billion during fiscal 2018. Concurrently, management announced a 2% hike in its annual cash dividend, taking it to $2.08 per share. In fiscal 2019, the annual dividend will be paid in four quarterly instalments of 52 cents each, as per the record and payable date schedule. This marked the company’s 45th straight year of dividend hike.
Guidance
Management remains impressed with its ongoing momentum and remains on track to achieve greater success. Further, the company is in the process of assessing the accounting impacts of the recently enacted tax reforms. In this regard, Walmart has recorded a provisional benefit of about $207 million for the fourth quarter and fiscal 2018. The company also made forecasts for fiscal 2019
Fiscal 2019 View
The company expects consolidated net sales (on a constant-currency basis) to increase in a range of 1.5- 2%. Net sales is expected to be hurt by closures of Sam’s Club stores and plans to remove tobacco from various clubs. Also, net sales growth is expected to be impacted by plans to shut down first-party eCommerce business in Brazil and the divestiture of business in Suburbia.
Walmart expects U.S. comps (excluding fuel) to grow at least 2%, while it anticipates Sam’s Club comps (excluding fuel and tobacco) to increase in a range of 3-4%. Tobacco is likely to dent comps by roughly 400 bps.
Walmart U.S. e-commerce sales is projected to jump nearly 40%. Effective tax rate is likely to range from 24-26%. Finally, earnings per share is envisioned in a band of $4.75 to $5.00 (including currency gains of about 5 cents).
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates. There have been four revisions higher for the current quarter compared to five lower.
At this time, WMT has a strong Growth Score of A, though it is lagging a lot on the momentum front with a D. The stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.
Our style scores indicate that the stock is more suitable for growth investors than value investors.
Outlook
Estimates have been trending downward for the stock and the magnitude of these revisions indicates a downward shift. Interestingly, WMT has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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Why Is Walmart (WMT) Down 6.6% Since Its Last Earnings Report?
A month has gone by since the last earnings report for Walmart Inc. (WMT - Free Report) . Shares have lost about 6.6% in that time frame.
Will the recent negative trend continue leading up to its next earnings release, or is WMT due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Walmart’s Q4 Earnings Miss, Comps Up Again
Walmart posted fourth-quarter fiscal 2018 results, wherein adjusted earnings of $1.33 per share missed the Zacks Consensus Estimate of $1.36. Nonetheless, adjusted earnings grew 2.3% from $1.30 reported in the year-ago period.
Total revenues advanced 4.1% to $136.3 billion and also surpassed the Zacks Consensus Estimate of nearly $135 billion. The upside was driven by strength at all three businesses. On a currency-neutral basis, total revenues advanced 3.1% to $135.1 billion.
Consolidated operating income plunged 28% to $4.5 billion, whereas the operating income margin contracted 140 basis points to 3.3%. On a constant currency basis, operating income declined 29.3% to $4.4 billion.
Segment Details
Walmart U.S.: The segment recorded net sales growth of 3.4% to $86.6 billion in the quarter. U.S. comparable-store sales (comps), excluding fuel, jumped 2.6%, compared with 1.8% growth in the prior-year quarter. Notably, this was the 14th consecutive quarter of positive comps. While comp traffic improved 1.6%, average ticket inched up 1% in the quarter. Further, on a two-year stack basis, comps grew 4.4% — marking the company’s best performance in eight years.
Moreover, e-commerce sales positively impacted quarterly comp sales at Walmart U.S. by 60 bps. Notably, e-commerce sales in the segment jumped 23% (much lower than50% recorded in the previous quarter), while GMV surged 24%. Operating income at the segment dipped 0.9% to over $5 billion.
Walmart International: Segment net sales went up by 6.7% to $33.1 billion. On a currency-neutral basis, net sales improved 2.8% to $31.9 billion. However, operating income declined 10.9% to $1.3 billion. On a constant currency basis, it slumped 16.1%. Notably nine out 11 markets recorded positive comps, which included the company’s four biggest markets.
Sam’s Club: The segment, which comprises membership warehouse clubs, posted net sales growth of 3.3% to $15.5 billion. Sam’s Club comps, excluding fuel, rose 2.4%, in line with growth recorded in the prior-year quarter.
Comp traffic grew 4.3%, while ticket dipped 1.9%. E-commerce sales positively impacted comps by approximately 80 basis points in the quarter. The segment generated an operating loss of $0.3 million, as against an income of $0.4 million reported in the year-ago period.
Notably, U.S. comps for fiscal 2018 climbed 2.1%, whereas Walmart U.S. e-commerce sales soared 44%.
Other Financial Updates
Walmart ended the quarter with cash and cash equivalents of roughly $6.8 billion, long-term debt of nearly $30 billion, long-term capital lease and financing obligations of $6.8 billion and shareholders’ equity (excluding noncontrolling interest) of $77.9 billion.
In fiscal 2018, Walmart generated cash flow from operations of $28.3 billion and incurred capital expenditures of $10.1 billion, resulting in free cash flow of $18.3 billion. In fiscal 2019, the company anticipates capital expenditures to be nearly $11 billion.
Walmart paid $6.1 billion in dividends and made share buybacks worth $8.3 billion during fiscal 2018. Concurrently, management announced a 2% hike in its annual cash dividend, taking it to $2.08 per share. In fiscal 2019, the annual dividend will be paid in four quarterly instalments of 52 cents each, as per the record and payable date schedule. This marked the company’s 45th straight year of dividend hike.
Guidance
Management remains impressed with its ongoing momentum and remains on track to achieve greater success. Further, the company is in the process of assessing the accounting impacts of the recently enacted tax reforms. In this regard, Walmart has recorded a provisional benefit of about $207 million for the fourth quarter and fiscal 2018. The company also made forecasts for fiscal 2019
Fiscal 2019 View
The company expects consolidated net sales (on a constant-currency basis) to increase in a range of 1.5- 2%. Net sales is expected to be hurt by closures of Sam’s Club stores and plans to remove tobacco from various clubs. Also, net sales growth is expected to be impacted by plans to shut down first-party eCommerce business in Brazil and the divestiture of business in Suburbia.
Walmart expects U.S. comps (excluding fuel) to grow at least 2%, while it anticipates Sam’s Club comps (excluding fuel and tobacco) to increase in a range of 3-4%. Tobacco is likely to dent comps by roughly 400 bps.
Walmart U.S. e-commerce sales is projected to jump nearly 40%. Effective tax rate is likely to range from 24-26%. Finally, earnings per share is envisioned in a band of $4.75 to $5.00 (including currency gains of about 5 cents).
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates. There have been four revisions higher for the current quarter compared to five lower.
Walmart Inc. Price and Consensus
Walmart Inc. Price and Consensus | Walmart Inc. Quote
VGM Scores
At this time, WMT has a strong Growth Score of A, though it is lagging a lot on the momentum front with a D. The stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.
Our style scores indicate that the stock is more suitable for growth investors than value investors.
Outlook
Estimates have been trending downward for the stock and the magnitude of these revisions indicates a downward shift. Interestingly, WMT has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.