Retailers have put up some pretty positive reports for the second quarter, despite what the stock reactions might indicate. And that puts Wal-Mart Stores Inc (NYSE:WMT) in the hot seat leading up to its earnings announcement Thursday, Aug. 17, before the markets open. WMT stock already is up nearly 20% year-to-date, so the retailer needs to reward the faith with tangible progress.
Otherwise, expect Walmart stock to reverse course in a big way, putting an end to a pretty good year for shareholders.
The Scuttlebutt on Walmart Earnings
In the first quarter, Walmart beat both the analyst estimate and the whisper number by delivering profits of $1 per share. That was 2 cents better than the whisper, and 4 above the mainstream consensus estimate. That beat also helped drive WMT stock another 8% higher since the release in May.
The whisper number for Walmart’s second quarter is $1.08 — a penny higher than the consensus estimate — and analysts expect that to come on $122.7 billion in revenue. Walmart expects its EPS somewhere between $1 and $1.08.
Walmart U.S. and Sam’s Club same-store sales growth of at least 1.5% and 1.0% respectively excluding fuel. In the same quarter last year, Walmart’s U.S. stores saw comps growth of 1.6% excluding fuel, while Sam’s Club was only able to grow same-store sales by 0.6% excluding fuel.
Based on guidance, it appears as though Sam’s Club is poised to deliver better numbers in Q2 2018, while Walmart’s U.S. stores will do about the same growth numbers as last year.
E-Commerce Initiatives
During the second quarter, Walmart announced it was acquiring Bonobos for $310 million. Initially an online seller of men’s clothing, it now offers brick-and-mortar locations as well.
Buying Bonobos cost Walmart about 10% of one-quarter’s free cash flow, so this was more about acquiring digital and fashion expertise than it was about making a big splash. It will be interesting to hear about what plans it has for Bonobos in the future.
In the first quarter, Walmart’s e-commerce business grew by 63% year over year, most of it from Walmart.com, and significantly higher than Amazon.com, Inc.’s (NASDAQ:AMZN) 24% North American e-commerce growth in Q1.
Pay attention to what CEO Doug McMillon has to say about its online business. It needs to keep innovating if it wants to challenge Amazon for the title of world’s greatest online retailer.
International Improvements
Walmart’s operations outside the U.S. didn’t have a great first quarter, with net revenues decreasing 3.5% to $27.1 billion. That came to $1.2 billion in operating income, or a 0.1% dip. Excluding currency, revenues and operating income rose 0.8% and 9.0%, respectively.
In its four major markets of the UK, Mexico, Canada, and China, traffic was down across the board leading to decreased operating income in both the U.K. and Canada. However, the Canadian market did manage to deliver 1.5% same-store sales growth in the quarter.
Said differently: Walmart needs to do better internationally.
The second quarter will include a pre-tax gain of $650 million from the sale of its Suburbia apparel stores in Mexico. Investors will want to exclude that from any analysis of Walmart’s international business in the quarter.
Bottom Line on WMT Stock
As Walmart heads into earnings, there’s some argument among analysts whether traffic grew in its U.S. stores during the second quarter.
We’ll know soon enough.
I’d be less focused on its U.S. brick-and-mortar business than I would its e-commerce initiatives and its international stores. If WMT stock wants to challenge its all-time high of $90.97, these two areas of its business have to be moving in the right direction.
If you own Walmart shares, I wouldn’t sell regardless of what’s said in the Q2 2017 earnings release and conference call. WMT still is one of the better retail stocks you can own.
As of this writing, Will Ashworth did not hold a position in any of the aforementioned securities.
