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Why Is Walmart (WMT) Down 0.3% Since Last Earnings Report?

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It has been about a month since the last earnings report for Walmart (WMT - Free Report) . Shares have lost about 0.3% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Walmart due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Walmart Q3 Earnings Top Estimates, E-commerce Sales Up

Walmart posted third-quarter fiscal 2020 results, Walmart’s adjusted earnings came in at $1.16 per share, surpassing the Zacks Consensus Estimate of $1.09. Moreover, earnings increased 7.4% year over year. This could be largely attributable to higher revenues as well as impressive cost control in Walmart U.S.

Total revenues grew 2.5% to almost $128 billion. On a currency-neutral basis, total revenues grew 3.3% to $129 billion. The year-over-year upside was driven by growth in all segments. The Zacks Consensus Estimate was pegged at approximately $129 billion.

Consolidated gross profit margin contracted 36 basis points (bps) on account of the impact from Flipkart’s addition and continued price investments in the United States. Gross margin in Walmart U.S. contracted 4 bps due to constant price investments, partly compensated by reduced supply-chain costs and improved merchandise mix.

Consolidated operating income fell 5.4% to $4.7 billion. On a constant-currency (cc) basis, operating income declined nearly 4.1%. Excluding certain impairment charges related to Walmart International, operating income rose marginally. Results were however hurt by Flipkart’s inclusion.

Segment Details

Walmart U.S.: The segment’s net sales grew 3.2% to $83.2 billion in the quarter. U.S. comps, excluding fuel, improved 3.2% on the back of a 1.3% rise in transactions and 1.9% in ticket.

Further, e-commerce sales drove comps by 170 bps. E-commerce sales soared 41% on the back of strength in online grocery. During the quarter, Walmart unveiled the Delivery Unlimited membership option for 1,400 U.S. stores. Also, it launched Walmart InHome Delivery across three markets. By the end of the quarter, Walmart U.S. had more than 3,000 pickup locations and more than 1,400 same-day grocery delivery locations. Operating income at the Walmart U.S. segment increased 6.1% to $4.2 billion.

Walmart International: Segment net sales rose 1.3% to $29.2 billion. On a currency-neutral basis, net sales advanced 4.8% to $30.2 billion, with seven out of 10 markets registering positive comps. Robust performance in China and Walmex along with gains from Flipkart were partly offset by weakness in the U.K. Notably, Flipkart reported record sales at ‘The Big Billion Days’ event. Operating income at this segment slumped 46.2% to $0.6 billion. On a currency-neutral basis, operating income tumbled 40.8% to $0.7 billion.

Sam’s Club: The segment, which comprises membership warehouse clubs, saw its net sales rise 0.7% to $14.6 billion. Sam’s Club comps, excluding fuel, rose 0.6%. Comps were hurt by lower tobacco sales to the tune of 350 bps. While transactions increased 5.7%, ticket was down 5.1%. E-commerce fueled comps by 170 bps. Markedly, e-commerce sales jumped 32% at Sam’s Club. Segment operating income came in at $0.3 billion, down 13.7% year over year.

Other Financial Updates

Year to date, Walmart has generated operating cash flow of $14.5 billion and incurred capital expenditures of $7.8 billion, resulting in free cash flow of $6.8 billion. The company allocated $1.5 billion toward dividends and made share buybacks worth $1.1 billion during the fiscal third quarter.

Recent Developments & View

Walmart, which revealed John Furner as the new president and CEO of its U.S. division during the quarter, continues to focus on innovation and leveraging technology to drive growth. However, the company foresees headwinds for the Walmart U.S. division for the fourth quarter. These include a shorter holiday selling period and the absence of SNAP’s benefit on comps. Also, management expects currency translations to hurt net sales by nearly $100 million in the fourth quarter.

Management now envisions fiscal 2020 earnings per share to rise slightly year over year (including Flipkart) and at a high-single-digit rate (excluding Flipkart). Earlier, the company projected earnings per share growth of a slight decrease to a marginal rise (including Flipkart) and increase at a mid to high-single-digit rate (excluding Flipkart).

How Have Estimates Been Moving Since Then?

Estimates revision followed a flat path over the past two months.

VGM Scores

Currently, Walmart has an average Growth Score of C, however its Momentum Score is doing a bit better with a B. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Walmart has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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