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Walmart (WMT) Down 7.7% Since Last Earnings Report: Can It Rebound?

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It has been about a month since the last earnings report for Walmart (WMT - Free Report) . Shares have lost about 7.7% 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 drivers.

Walmart Q3 Earnings & Sales Increase Y/Y, View Raised

Walmart posted third-quarter fiscal 2019 results. Walmart’s adjusted earnings came in at $1.08 per share, which came ahead of the Zacks Consensus Estimate of $1.02. Further, earnings improved 8% from $1.00 in the year-ago quarter. We believe that enhanced sales and a fall in interest expenses fueled bottom-line growth. Including one-time items, Walmart reported earnings of 58 cents per share, which remained flat year over year.

Total revenues advanced 1.4% to $124.9 billion that came in line with the Zacks Consensus Estimate. The upside was driven by strength in the U.S. businesses. On a currency-neutral basis, total revenues grew 2.4% to $126.1 billion.

Consolidated gross profit margin contracted 21 basis points (bps) on account of price investments in various markets, elevated transportation expenses and e-commerce mix impacts.

Consolidated operating income increased 4.7% to approximately $5 billion. On a constant-currency basis, operating income increased 5.9%.

Segment Details

Walmart U.S.: The segment recorded net sales growth of 3.7% to $80.6 billion in the quarter. U.S. comps, excluding fuel, improved 3.4% backed by a 1.2% rise in traffic and 2.2% in ticket. Comps were driven by a solid back-to-school sales along with strong fall seasonal products sales. Also, favorable demand for Walmart’s omnichannel offerings buoyed results.

Further, e-commerce sales surged 43% (better than 40% growth recorded in the second quarter) and drove comps by 140 bps. E-commerce sales improved on the back of enhanced online assortment and increased grocery pickups. Incidentally, grocery pickups can be now availed at 2,100 locations with delivery available in roughly 600 locations. Operating income at the segment climbed 2.9% to $3.9 billion.

Walmart International: Segment net sales slipped 2.6% to $28.8 billion. On a currency-neutral basis, net sales inched up 1.6% to $30 billion with nine out of ten markets registering positive comps. Walmart concluded the buyout of major stake in Flipkart during the third quarter. The company also deconsolidated results from Brazil. Operating income at this segment fell 3.7% to $1.2 billion. On a currency-neutral basis, operating income rose 1% to $1.2 billion.

Sam’s Club: The segment, which comprises membership warehouse clubs, saw its net sales decline 2.3% to $14.5 billion. Sam’s Club comps, excluding fuel, rose 3.2%. Excluding fuel and tobacco, comps jumped 5.7%, courtesy of e-commerce sales growth and sales transfer from closed to currently open clubs. While traffic increased 6.2%, ticket was down 3%. E-commerce fueled comps by nearly 130 bps. Segment operating income declined 12.5% to $0.4 billion.

Other Financial Updates

Walmart ended the quarter with cash and cash equivalents of roughly $9,174 million, long-term debt of nearly $43,275 million, long-term capital lease and financing obligations of $6,621 million, and shareholders’ equity (excluding noncontrolling interest) of $71,996 million.

Year to date, Walmart generated operating cash flow of $17.3 billion and incurred capital expenditures of $7 billion, resulting in free cash flow of $10.3 billion. Walmart allocated $1.5 billion toward dividends and made share buybacks worth $2.3 billion during the third quarter.

Recent Developments & View

Management is impressed with its solid results and encouraged about the rosy U.S. economic scenario. Further, the company is focused on boosting innovations and leveraging technology to drive growth. Walmart also is hopeful about the holiday season, given consumers’ continued favorable response to its omnichannel offerings.

Considering these factors along with a strong third quarter and solid anticipations for the fourth quarter, the company raised its U.S. comps and adjusted earnings per share guidance for fiscal 2019.

U.S. comps are now anticipated to grow at least 3% (excluding fuel) compared with roughly 3% growth expected earlier. Adjusted earnings are now expected to be $4.75-$4.85, up from $4.90-$5.05 guided earlier.

How Have Estimates Been Moving Since Then?

Fresh estimates followed a downward path over the past two months.

VGM Scores

Currently, Walmart has a nice Growth Score of B, a grade with the same score on the momentum front. Following the exact same course, the stock was allocated a grade of B on the value side, putting it in the top 40% 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.


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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