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Walmart's (WMT) Q4 Earnings Miss Hurts Stock, Comps Up Again

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Walmart Inc. (WMT - Free Report) posted fourth-quarter fiscal 2018 results, wherein both earnings and revenues improved year over year and the latter also exceeded the Zacks Consensus Estimate. However, Walmart crushed its nine-quarter long trend of posting positive earnings surprise in the quarter. Also, rate of e-commerce sales growth declined sequentially in the quarter.

This seems to have marred investors’ confidence as shares of this supermarket giant lost close to 6.5% in the pre-market trading hours. Nevertheless, the Zacks Rank #3 (Hold) company’s robust past performance and solid endeavors to combat Amazon’s (AMZN) rising dominance have helped its shares rally 50.4% year to date, beating the industry’s 40.5% growth.





 

Quarter in Detail

Walmart’s 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.

 

Wal-Mart Stores, Inc. Price, Consensus and EPS Surprise
 

 

Wal-Mart Stores, Inc. Price, Consensus and EPS Surprise | Wal-Mart Stores, Inc. Quote

 

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.

Fiscal 2018 at a Glance

Walmart’s earnings for fiscal 2018 came in at $4.42 per share, up 2.3% year over year. However, this came below the consensus mark of $4.44. Net revenues for fiscal 2018 advanced 3% to $500.3 billion, cruising ahead of the consensus estimate of $498.1 billion. On a currency-neutral basis, net revenues increased 3.1% to $500.9 billion.

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).

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Foot Locker (FL - Free Report) , with a Zacks Rank #1, has witnessed positive estimate revisions over the past 30 days.

Children's Place (PLCE - Free Report) with a Zacks Rank #2 (Buy), has a splendid earnings surprise history and a long-term earnings growth rate of 9%.

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