Walmart Beats Q2 Earnings Expectations, Boosts FY20 View

Walmart Beats Q2 Earnings Expectations, Boosts FY20 View
August 16, 2019


The world’s largest retailer Walmart Inc. (NYSE: WMT) reported a swing to profit in the second quarter of fiscal 2020, compared to a net loss in the year-ago period. The third-largest employer in the world also exceeded the Wall Street expectations for the reported period. Walmart upwardly revised its adjusted earnings and comp sales forecast for fiscal 2020. Following impressive results, the company with a market cap of $316 billion ended Thursday’s trading session at $112.69, up $6.49 or 6.11% from the prior close.

The Bentonville, Arkansas-based company reported total revenues of $130.38 billion, up 1.8% from $128.03 billion in the similar period last year. On a constant currency basis, revenues increased 2.9% to $131.70 billion. Analysts had anticipated revenues of $130.11 billion for the quarter.

Consolidated net income for the recent quarter was $3.61 billion, or $1.26 per share, compared with a net loss of $861 million, or $0.29 per share in the year-ago quarter. Excluding one-time charges, adjusted earnings for the quarter were $1.27 per share, down from $1.25 per share last year. On average, analysts surveyed by Thomson Reuters anticipated Walmart to post earnings of $1.22 per share for the second quarter.

Commenting on the results, CEO Doug McMillon said, “From a performance point of view, we’re pleased with the strength we see in the business. Customers are responding to the improvements we’re making, the productivity loop is working, and we’re gaining market share. We’re on track to exceed our original earnings expectations for the year, and that’s possible because of the work our associates do every day.”

During the June quarter, net sales increased 1.8% y-o-y to $128.39 billion, while Membership and other revenues grew 2.1% to $989 million in the prior-year period.

US Comp sales rose 2.8% and net sales increased 2.9% to $85.20 billion. The figures exceeded Refinitiv’s growth rate estimate of 2.07%. Walmart now forecasts that US Comp sales growth will be at the high end of its earlier guided range of 2.5% to 3%.

Walmart’s US eCommerce sales increased 37% y-o-y, compared with the company’s expectation of 35%. Sam’s Club Comp sales increased 1.2% and e-commerce sales rose 35% from the prior year. A decrease in sales of tobacco negatively impacted Comp sales by 300 basis points.

In the meantime, net sales at Walmart International fell 1.1% to $29.10 billion but increased 3.30% to $30.40 billion on a constant currency basis. The strong performance of Walmex and China were offset by sluggishness in Canada and the UK.

Roughly two-thirds of goods sold by Walmart are sourced within the US, mainly due to its colossal food business, which approximately contributes 56% of total revenue. The rest one-third of goods are imported, primarily from China.

Regarding the impact of the trade war between the US and China, CFO Brett Biggs opined that the latest earnings forecast reflect the overhauled import duties on goods from China. He further stated that Walmart is “hopeful for a long-term agreement” between the US and China and that Walmart has “thoughtfully managed through pricing and margins, working to find a nice balance between our customers and shareholders.”

Going forward, the company now anticipates fiscal 2020 adjusted earnings to range between a slight decrease and a small rise from the 2019 adjusted earnings, compared with the previous forecast for a drop in the low single-digit percentage. Consolidate net sales is now anticipated to increase roughly 3% in constant currency, compared with the prior growth view of at least 3% in constant currency. The forecast includes the impact of Indian e-commerce firm Flipkart’s acquisition.

Morgan Stanley analysts believe that vigorous online expansion will widen e-commerce business losses to $1.70 billion in fiscal 2019, from $1.40 billion in fiscal 2018.

Walmarts online expansion has come at a cost to profitability and losses at the US e-commerce business could rise to about $1.7 billion this year from $1.4 billion in 2018, according to estimates from Morgan Stanley.

The earnings beat better-than-anticipated same-store sales, and the upbeat FY20 view is anticipated to keep the stock bullish in the short-term.

Technically, the stock continues to receive support from its 50-day moving average. The MACD indicator is also making new highs. As a result, we can anticipate the stock to remain bullish in the short-term.

WMT - technical analysis - 16th Aug 2019

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Janine is our editor for related stock market news. Andrew and Janine will be focusing on providing the latest trends and where the next hit could be

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