A month has gone by since the last earnings report for Walmart (WMT - Free Report) . Shares have added about 4.2% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Walmart due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
Walmart Q4 Earnings Lag Estimates, Sales Increase Y/Y
Walmart posted fourth-quarter fiscal 2020 results, wherein adjusted earnings came in at $1.38 per share, falling short of the Zacks Consensus Estimate of $1.43. Moreover, earnings dropped 2.1% year over year. This could be accountable to higher cost of sales as well as increased operating, selling, general and administrative expenses. Further, the disruption in Chile and a legal matter affected the bottom line by around 5 cents.
Total revenues grew 2.1% to nearly $141.7 billion. The year-over-year upside was driven by growth in all segments. The Zacks Consensus Estimate was pegged at $142.4 billion.
Consolidated gross profit margin contracted 47 basis points (bps) to 23.4%. Gross margin in Walmart U.S. contracted 34 bps due to constant price investments and rising e-commerce mix, partly compensated by reduced supply-chain costs. Consolidated operating income fell 12.3% to $5.3 billion. On a constant-currency (cc) basis, operating income declined 12.7%. Adjusted operating income decreased 3.7% to $5.8 billion at cc.
Walmart U.S.: The segment’s net sales grew 1.9% to $92.3 billion in the quarter. U.S. comp sales (or comps), excluding fuel, improved 1.9% on the back of a 1% rise in transactions and 0.9% in ticket. On a two-year stacked basis, comps rose 6%. This was backed by constant increases in food and consumables despite facing tough comparisons from last year’s SNAP benefit. In fact, strength in grocery, health & wellness, home and electronics drove the segment’s performance, somewhat offset by weakness in toys, media & gaming and apparel.
Further, e-commerce sales drove comps by 210 bps. E-commerce sales soared 35% on strength in online grocery. Solid growth in grocery pickup and delivery boosted e-commerce sales in the segment. Further, walmart.com saw considerable growth. As of the fourth quarter, Walmart U.S. had nearly 3,200 pickup locations, more than 1,600 same-day grocery delivery locations and nearly 1,500 pickup towers. Adjusted operating income at the Walmart U.S. segment declined 3.8% to $4.9 billion.
Walmart International: Segment net sales rose 2.3% to $33 billion. On a currency-neutral basis, net sales advanced 2.2% to $33 billion, with six out of 10 markets registering positive comps. Robust performance in China, Mexico and Canada was partly offset by Brexit-related worries in the U.K. and headwinds in Chile. Adjusted operating income rose 0.4% to $1.2 billion at cc. Operating income was partly hurt by the disruption in Chile.
Sam’s Club: The segment, which comprises membership warehouse clubs, witnessed a net sales rise of 2.6% to $15.3 billion. Sam’s Club comps, excluding fuel, rose 0.8%. Comps were hurt by lower tobacco sales to the tune of around 300 bps. While transactions grew 4.3%, ticket was down 3.5%. E-commerce fueled comps by 200 bps. Markedly, e-commerce sales jumped 33% at Sam’s Club. Segment operating income came in at $0.4 billion, down 7.2% year over year.
Other Financial Updates
In fiscal 2020, the company generated operating cash flow of $25.3 billion and incurred capital expenditures of $10.7 billion, resulting in free cash flow of $14.6 billion. The company allocated $6 billion toward dividends and made share buybacks worth $5.7 billion during the fiscal.
In a separate press release, management raised its annual dividend for fiscal 2021 to $2.16 per share, from $2.12 paid out in fiscal 2020. The raised dividend will be paid out in quarterly installments of 54 cents per share.
For fiscal 2021, management expects consolidated net sales growth (at cc) of nearly 3%. Comps at the U.S. division are likely to rise at least 2.5% (excluding fuel). At Sam’s Club, comps are expected to decline 50 bps, excluding fuel, while it is likely to rise 3%, excluding fuel and tobacco.
Walmart U.S. e-commerce sales are likely to jump roughly 30%. Further, net sales at Walmart’s International segment are anticipated to increase approximately 4% at cc.
Walmart anticipates expense leverage of nearly 20 bps in fiscal 2021 and consolidated operating income growth to be similar to that of the bottom line. Management envisions fiscal 2021 earnings per share of $5.00-$5.15, implying an increase of 1.5-4.5% from adjusted earnings of $4.93 reported in fiscal 2020.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates.
At this time, Walmart has a nice Growth Score of B, though it is lagging a bit on the Momentum Score front with a C. Following the exact same course, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Walmart has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.