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Factors Setting the Stage for Walmart's (WMT) Q1 Earnings

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Walmart Inc. (WMT - Free Report) is likely to witness a year-over-year increase in the bottom line when it reports first-quarter fiscal 2022 numbers on May 18, before market open. The Zacks Consensus Estimate for earnings has remained unchanged over the past 30 days at $1.21 per share, which indicates a 2.5% rise from the figure reported in the prior-year period. Markedly, the supermarket giant has a trailing four-quarter earnings surprise of almost 10%, on average. However, Walmart delivered a negative earnings surprise of nearly 8% in the last reported quarter.

The Zacks Consensus Estimate for revenues is pegged at $131.3 billion, suggesting a decline of 2.5% from the prior-year quarter’s reported figure. The company had witnessed a revenue increase of 7.3% in the last reported quarter.

Key Factors to Note

Walmart has been benefiting from burgeoning demand for essential items amid coronavirus. Further, higher stay-at-home trends are boosting e-commerce sales. The company, on its fourth-quarter earnings call, said that it is moving ahead with its integrated omnichannel strategy, which concentrates on being the main destination for customers, undertaking innovation to improve digital customer experience and investing in workers.

Walmart Inc. Price, Consensus and EPS Surprise

Walmart Inc. Price, Consensus and EPS Surprise

Walmart Inc. price-consensus-eps-surprise-chart | Walmart Inc. Quote

Well, Walmart’s e-commerce business and omnichannel penetration have been growing all the more amid the pandemic-led social distancing. In this regard, it has been taking robust strides to strengthen its delivery arm. This is evident from the company’s pilot with HomeValet; introduction of Carrier Pickup by FedEx; launch of the Walmart + membership program; drone delivery pilots in the United States with Flytrex, Zipline and DroneUp; pilot with Cruise to test grocery delivery through self-driven all-electric cars and introduction of Express Delivery, to name a few. As of the fiscal fourth quarter, Walmart U.S. had 3,750 pickup locations and 3,000 same-day delivery locations.

U.S. e-commerce sales soared 69% in the fourth quarter with strength across all channels and solid holiday sales at Walmart.com. Apart from these, the big-box retailer has been undertaking several efforts to enhance merchandise assortments and has also been focused on store remodeling, to upgrade them with advanced in-store and digital innovation. These factors helped Walmart’s U.S. comp sales to increase for the 26th straight time in the last reported quarter.

That being said, we cannot ignore the impact of the company’s digital and pricing investments on margins. Also, the company incurred roughly $1.1 billion as additional costs related to COVID-19 in the fourth quarter of fiscal 2021. This, along with the repayment of property tax relief in the U.K., weighed on the company’s adjusted operating income and the bottom line in the last reported quarter. Additionally, in its fourth-quarter earnings release, management said that it remains focused on investing in its workers and creating opportunities. To this end, it is raising wages of another 425,000 frontline workers, following wage hikes for 165,000 workers, last fall. This may exert pressure on margins.

Apart from these, the company’s results are likely to reflect the impacts of divestitures. Incidentally, the company completed the divestiture of Walmart Argentina in November 2020 and Walmart U.K. in February 2021. Further, management has said that it expects the sale of its business in Japan to be concluded in the first quarter of fiscal 2022. We note that management’s guidance for fiscal 2022 suggests a decline in net sales, operating income and earnings per share, mainly due to divestitures. These factors also raise concerns over the quarter to be reported.

What the Zacks Model Unveils

Our proven model predicts an earnings beat for Walmart this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Walmart currently has a Zacks Rank #3 and an Earnings ESP of +1.65%. You can see the complete list of today’s Zacks #1 Rank stocks here.

Other Stocks With Favorable Combinations

Here are some other companies you may want to consider, as our model shows that these too have the right combination of elements to post an earnings beat this season.

Dollar Tree (DLTR - Free Report) has an Earnings ESP of +1.40% and a Zacks Rank #3.

Burlington Stores (BURL - Free Report) has an Earnings ESP of +36.98% and a Zacks Rank #3.

Costco Wholesale (COST - Free Report) has an Earnings ESP of +3.12% and a Zacks Rank #3.

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