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Walmart (WMT) to Report Q2 Earnings: Factors You Must Watch

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Walmart Inc. (WMT - Free Report) is in focus as the world’s largest retailer is slated to release second-quarter fiscal 2020 results on Aug 15. The company, which has long been making robust efforts to counter the growing dominance of Amazon (AMZN - Free Report) , has delivered average positive earnings surprise of 7.3% in the trailing four quarters.

Let’s see what’s in store for the company this time around.

Walmart Inc. Price and EPS Surprise

Walmart Inc. Price and EPS Surprise

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

What to Expect?

The Zacks Consensus Estimate for earnings in the second quarter has been stable over the past 30 days at $1.21, which suggests a decline of 6.2% from the year-ago period’s reported figure. The consensus mark for revenues is $130,492 million, indicating growth of 1.9% from the year-ago quarter’s reported figure.

Omnichannel: A Major Growth Driver

Walmart’s second-quarter fiscal 2020 results are likely to gain from its solid omnichannel efforts. To this end, the company’s focus on enhancing merchandise assortments and undertaking store remodeling initiatives bodes well. Also, its compelling pricing strategy is a sales driver. These factors along with Walmart’s strong e-commerce business have been boosting its comparable store sales (comps) for quite some time now. We expect the upcoming quarterly results to reflect these upsides.

Markedly, Walmart has been taking several e-commerce initiatives, including buyouts, alliances, and improved delivery and payment systems. To this end, the company’s partnership with Microsoft; buyouts of ShoeBuy, Moosejaw, Bonobos, ModCloth and Jet.com; and deal with Lord and Taylor, among others, underscore its intention to build an impressive digital brand portfolio. Further, Walmart’s buyout of 77% stake in Flipkart is likely to drive its e-commerce sales.

Apart from this, the company is making aggressive efforts to expand in the booming online grocery space, which has long been a major contributor to e-commerce sales. The company’s contract with DoorDash and buyout of Parcel, among others, highlight its focus on enhancing grocery sales. Further, Walmart partnered with ride-hailing services, Uber and Lyft, for speedy online grocery deliveries and also tested same-day delivery with Deliv. The company had earlier stated that it expects roughly 3,100 grocery pick-up locations and about 1,600 grocery delivery locations by the end of fiscal 2020, raising hopes about the quarter under review.

This apart, Walmart is likely to gain from its steps to improve the international business unit. To this end, the company is making continued efforts to shift focus from underperforming areas to profitable regions like India and China.

Margins Look Troubled

While Walmart’s online strategies have been driving its business, costs associated with investments in e-commerce expansion and technological advancements, the mix impact from growing e-commerce operations, and a compelling pricing strategy have been weighing on its margins. In the last reported quarter, consolidated gross margin contracted 27 bps to 23.8% on account of mix effects in the International segment and impact from Flipkart’s addition. Moreover, gross margin in Walmart U.S. was somewhat hurt by high transport costs and constant price investments. Persistence of these trends and concerns surrounding increased tariffs on Chinese imports pose threats to margins.
 
Though the Flipkart deal is expected to augment Walmart’s top line, the bottom line is likely to be adversely impacted by the costs associated with this investment.   

What the Zacks Model Unveils

Our proven model doesn’t show a beat for Walmart this earnings season. For this to happen, a stock needs to have both 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 carries a Zacks Rank #2, it has an Earnings ESP of 0.00%, which makes surprise prediction difficult.

Stocks Poised to Beat Earnings Estimates

Burlington (BURL - Free Report) has an Earnings ESP of +0.35% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Target (TGT - Free Report) has an Earnings ESP of +1.04% and a Zacks Rank #2.

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