Wal-Mart Stores, Inc. (WMT) Stock Light on Revenue, But Can Explain

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Wal-Mart Stores, Inc. (NYSE:WMT) delivered earnings that beat analyst estimates slightly, but revenue was slightly below estimates, and the shares promptly fell nearly 3% in pre-market trading.

Wal-Mart Stores, Inc. (WMT) Stock Light on Revenue, But Can Explain

Net income was $3.034 billion, 98 cents per share, on revenue of $118.2 billion, compared with earnings of $3.304 billion, $1.03 per share, and revenue of $117.4 billion a year earlier.

So far in the fiscal year the company has delivered $3.16 in earnings per fully diluted share, and expects full-year adjusted earnings of $4.20-$4.35 per share, again slightly below estimates.

Losing the 7-Handle

The pre-market fall dropped Walmart below the $70 per share figure it had mostly been hovering over since May, although it remains up for the year. The fall in the stock price means the 50 cent per share dividend, which is covered twice over by earnings, now rates a higher yield of nearly 3%.

Analysts had recently grown more upbeat about Walmart, with a few more rating it a buy or strong buy, though most still rate it as a hold. Management had been encouraging the optimism, raising guidance after the second quarter earnings report where same-store sales rose 1.6%, while analysts had expected a 1% gain.

For the October quarter, WMT earnings showed same-store sales were up 1.2%, year-over-year, with traffic up 0.7% and the average sale up 0.5%. U.S. operating income came in at $3.999 billion, which was down from last year’s $4.506 billion.

The sales weakness can be blamed on grocery prices, which are down. Walmart now gets 56% of its revenue from groceries, rather than the clothes, electronics and sporting goods that led the way during the last century. Inflation should raise that revenue number, when it comes, and give the store’s results a boost.

The star of the earnings show was e-commerce, following the acquisition of Jet.Com for $3 billion in August. Jet executives have already been slotted into the top jobs in the company’s e-commerce division, which has been an area of focus ever since C. Douglas McMillon became CEO in 2014.

How Should WMT Stock Investors Feel?

The numbers being reported were close enough to estimates that you can see a few general trends.

Walmart is big enough that it has become a proxy for the general retail economy. That economy was a bit weak in the third quarter as many people fretted about the election. The results went well in “Walmart Country,” the broad middle of the nation, and badly in areas where the company’s market share is lower, the big cities of the east and west.

To me it indicates that Christmas sales could be strong, stronger than in the retail sector generally. The new Administration’s plans to raise deficits and inflation could give the Walmart customer confidence. A weaker dollar will also benefit international earnings, which were hurting results when they were translated from local currency into U.S. currency.

In the near term, I expect a positive WMT earnings surprise when Christmas results come in next February.

Income investors may come in if the yield rises to over 3%, which minimizes your risk if you want to buy the stock today. If Christmas comes out as I expect, with a falling dollar and a little inflation raising WMT same-store sales, you could easily see some profits a trader can take in the spring.

Dana Blankenhorn is a financial and technology journalist. His latest novel is Bridget O’Flynn vs. Something Big & Ugly. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As of this writing, he did not hold a position in any of the aforementioned securities.

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Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, available at the Amazon Kindle store. Tweet him at @danablankenhorn, connect with him on Mastodon or subscribe to his Substack.


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