Back to top

Walmart (WMT) to Post Q1 Earnings: Here's What You Must Know

Read MoreHide Full Article

Walmart Inc. (WMT - Free Report) is set to release first-quarter fiscal 2019 results on May 17. We note that the giant omni-channel retailer’s earnings have surpassed estimates in three out of the four trailing quarters, with an average surprise of 1.5%. The company boasts of a well-spread global business network and has been steadily making headway in the online retail space, supported by robust delivery services.

Courtesy of consistent strategic moves, Walmart has been gaining traction in an Amazon (AMZN - Free Report) -dominated retail space. Notably, these endeavors have been fueling its top- and bottom-line performances. The above factors have led the company to hit headlines quite often. In fact, there is much excitement surrounding the Flipkart deal, which has been set into action.

Considering these aspects, let’s look into some of the factors that might impact the upcoming quarterly release.

International Business: A Growth Platform

Walmart’s international business is a well-suited archetype for modern day globalization. With presence in approximately 28 nations and a strong base in regions such as China, Mexico, Canada and UK, Walmart’s international segment forms its second-largest unit, in terms of revenues. Evidently, international sales constituted about 24% of revenues in fourth-quarter fiscal 2018 wherein currency-neutral sales improved 2.8%.  

Walmart Inc. Price, Consensus and EPS Surprise

Notably, the segment performed well throughout fiscal 2018, with 10 out of 11 markets delivering positive comps — including Walmex — that led to the growth. Results in China were impressive, courtesy of efforts to enhance online grocery delivery through the company’s extended alliance with JD.com. The company is on track to fortify Sam’s Club store base in China.

With such well-woven strategies, management expects Walmart’s international business to continue growing.  Moreover, the Zacks Consensus Estimate for this segment’s sales is estimated at $28.8 billion for the first quarter of fiscal 2019, reflecting a growth of almost 6.2% from the prior-year reported quarter’s figure.  

Other Factors

Walmart has been gaining from its sturdy comparable store sales (comps) record. Evidently, during fourth-quarter fiscal 2018, earnings and revenues improved year over year. In fact, the company’s comps have been quite sturdy in all segments, driven by constant expansion efforts and splendid e-commerce performance.

Speaking of e-commerce, the company has been undertaking several initiatives including buyouts, alliances and improved delivery as well as payment systems to bolster online performance. Recently, the company inked a deal with Rakuten, a leading Japanese e-commerce firm.

Apart from this, Walmart’s buyouts of ShoeBuy, Moosejaw, Bonobos, ModCloth as well as Jet.com and the deal with Lord and Taylor underscore its quest to build an impressive digital brand portfolio. The company’s Walmart Pay mobile payment system, Mobile Express Returns program and efforts to enhance checkout process highlight its focus on accelerating online business and making shopping easier as well as faster.

Additionally, Walmart’s efforts to enhance delivery services resonates well with its strategy of bolstering online sales, particularly that of groceries. To this end, the company recently inked a deal with Postmates to extend its online grocery delivery service to cover more than 40% of the families in the United States.

In earlier developments, the company tested same day deliveries with Deliv and partnered with ride-hailing services like Uber and Lyft for speedy online grocery deliveries. Moreover, Walmart acquired delivery startup Parcel, Inc., which specializes in same-day delivery for perishable and non-perishable products.

We expect the company’s robust e-commerce as well as delivery services to perk up comps and drive top-line performance in the upcoming quarterly release. Also, analysts polled by Zacks project sales to rise 2.2% to reach $120.1 billion in the yet-to-be-reported quarter.

Additionally, consensus mark for sales pertaining to Walmart U.S., the company’s largest revenue unit, is estimated at $77.8 billion, depicting a rise of 3.2%. Also, the Zacks Consensus Estimate for earnings for the impending quarter is pegged at 1.13, depicting a growth of 13% from the year-ago quarter’s figure. This estimate has increased by a penny over the last 30 days.

Strained Margins Pose Worry

Walmart’s gross margins have been sluggish lately, thanks to rising costs of operations, investments as well as pricing strategies. Evidently, these factors caused the company’s gross margin to contract 11 basis points (bps) and 29 bps in the second and third quarters of fiscal 2018, respectively. In fourth-quarter fiscal 2018, consolidated gross margin shrank 61 bps, due to mixed impact from rising e-commerce operations and price investments in various markets. Further, management expects margins to stay under pressure in the forthcoming periods, which raises concerns for the quarter to be reported.

Nevertheless, Walmart is expected to counter such hurdles with solid sales, backed by sturdy comps. We are also encouraged regarding the company’s strength in e-commerce supported by its well-set network of delivery services that are likely to uplift performance in the quarter to be reported.

All said, let’s take a look into what the Zacks Model unveils regarding the upcoming release.

Zacks Model

Our proven model does not show that Walmart is likely to beat bottom-line estimates this quarter. For this to happen, a stock needs to have a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold). You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Though Walmart has an Earnings ESP of +4.98, its Zacks Rank #4 (Sell) makes surprise prediction difficult.

Stocks with Favorable Combinations

Here are some companies that possess the right combination of elements to post an earnings beat:

Burlington Stores, Inc. (BURL - Free Report) has an Earnings ESP of +0.69% and carries a Zacks Rank of 3.  You can see the complete list of today’s Zacks #1 Rank stocks here..

Target Corp. (TGT - Free Report) has an Earnings ESP of +0.32% and a Zacks Rank #3.

Looking for Stocks with Skyrocketing Upside?

Zacks has just released a Special Report on the booming investment opportunities of legal marijuana.

Ignited by new referendums and legislation, this industry is expected to blast from an already robust $6.7 billion to $20.2 billion in 2021. Early investors stand to make a killing, but you have to be ready to act and know just where to look.

See the pot trades we're targeting>>



More from Zacks Analyst Blog

You May Like