Earnings Outlook: Walmart earnings preview: A short holiday season likely put the squeeze on results

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The shortened holiday shopping season may have put the squeeze on Walmart Inc.’s quarterly results, according to analysts.

Walmart WMT, +0.41%   is scheduled to report fiscal fourth-quarter earnings on Tuesday before the opening bell. It is also hosting its investor community meeting on that day.

The 2019 holiday season had six fewer shopping days than usual, which experts and retailers expected would hurt sales overall. One major Walmart competitor, Target Corp. TGT, -0.63%  , has already said that the challenges were bigger than expected.

“While we continue to believe that Walmart is taking share in grocery, the mixed datapoints on the discretionary side plus the noise from a shortened holiday lead us to take a more conservative approach to our +2.1% U.S. comp forecast,” wrote analysts led by Kelly Bania at BMO Capital Markets.

The datapoints include the Mastercard SpendingPulse analysis saying U.S. retail sales grew 3.4% over the holiday season while the National Retail Federation said growth was 4.1% and NPD Group said it was 0.2%.

Read: E-commerce surge sparks questions about reliability of same-store sales metric

The FactSet consensus for comp, or same-store sales growth, is 2.8%.

BMO rates Walmart shares outperform with a $140 price target.

Instinet also reduced its comparable sales forecast to 2.4% growth based on the headwinds analysts identified from the quarter.

“These include unfavorable winter weather and a solid, but not spectacular, shorter selling period seemingly having a bigger impact than most expected,” analysts led by Michael Baker said.

Walmart is also lapping a 40-basis-point SNAP (Supplemental Nutrition Assistance Program) benefit from the government shutdown, Instinet said.

Instinet rates Walmart stock buy with a $132 price target.

Credit Suisse notes that the shorter holiday season was painful for all mass merchants.

“[W]e expect comps to reaccelerate in Q1, but we still see earnings-per-share growth constrained in fiscal 2021 by investments, Flipkart and other cost pressures,” analysts led by Seth Sigman wrote.

Credit Suisse rates Walmart stock neutral with a $115 price target.

Walmart has an average overweight stock rating and average target price of $129.40, according to a FactSet survey of 32 analysts.

See: Coronavirus could drive up out-of-stocks at stores by April: Wells Fargo

H ere are other items to watch for when Walmart reports:

Earnings: FactSet is guiding for fourth-quarter earnings per share of $1.44, up from $1.41 last year.

Estimize, which crowdsources estimates from sell-side and buy-side analysts, hedge-fund managers, executives, academics and others, is forecasting EPS of $1.47.

Walmart has beat the FactSet EPS consensus every quarter, except for one, going back to October 2015.

Revenue: The FactSet outlook is for revenue of $142.54 billion, up from $138.80 billion the prior year.

The Estimize consensus is for revenue of $143.28 billion.

Walmart missed the FactSet revenue forecast two out of the last three quarters.

Stock price: Walmart stock has fallen 2.7% over the past three months, but is up 19.2% over the past year.

The Consumer Discretionary Select Sector SPDR exchange-traded fund XLY, -0.02%  is up 20.7% over the past year, and the Dow Jones Industrial Average DJIA, -0.05%   has gained 15.7%.

Other items:

Walmart has shut down Jetblack and will lay off 293 employees, which accounts for most of the service’s staff, according to a report from The Wall Street Journal.

Jetblack was the personal shopping service from Jet.com, the e-commerce site that Walmart purchased for $3.3 billion in 2016. Jet.com is meant to focus on urban shoppers.

Walmart had already announced that it was absorbing Jet.com staff into the broader operations.

Also: Shopify price target soar after earnings

Investors are looking for Walmart’s digital business to grow profitably.

“Investors have been patient with the company for several years, and we think if commentary underwhelms, shares may be pressured in the near-term,” wrote Cowen analysts.

Media reports from last summer projected e-commerce losses of $1 billion for 2019.

Despite the e-commerce hurdle, Cowen is still upbeat about Walmart.

“We continue to view Walmart as one of the best positioned retailers with strong offensive and defensive characteristics,” analysts said. “The company continues to drive strong comps which we believe are sustainable on physical and digital progress.”

Cowen rates Walmart stock outperform with a $140 price target.

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The guidance will be key.

“Our sense is that the stock reaction from here will have less to do with fourth quarter than with the outlook for next year,” wrote John Zolidis, president of Quo Vadis.

“In particular, a key question (or perhaps the key question) is not if sales growth can continue, which most analysts are assuming, but rather whether Walmart can translate higher revenues into [earnings before interest and taxes] margin improvement. This has not been the case for some time.”

Zolidis is forecasting that automation, efficiencies and reduced investment pressure will help the bottom line. Quo Vadis rates Walmart stock buy.

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