Walmart Stores (WMT) is expected to announce its second-quarter results on Tuesday morning. Judging from the market’s recent treatment of WMT stock (down 20% from its January peak) in addition to analyst expectations for a lower profit total, amateur as well as professional investors are anything but optimistic about the impending Walmart earnings news.
Might this be a contrarian buying opportunity, though? After all, the world’s largest retailer has made a dent in some of its biggest problems, yet the market still widely presumes the worst.
In that vein, Tuesday may well be the pivot point for a frustratingly unpredictable WMT stock.
Walmart Earnings Outlook
As of the latest look, analysts believe Walmart will post Q2 earnings of $1.12 per share on $119.8 billion in revenue. Both are down slightly from the results achieved in the comparable quarter a year ago. In Q2 a year earlier, the retailer earned $1.21 per share of WMT stock on $120.1 billion worth of revenue.
Might it just be a sandbagged outlook from the company in order to ensure an earnings beat? Maybe, though not likely. The company has missed estimates in four of the past nine quarters, clearly indicating that it hasn’t been able to set itself up for underpromised-and-overdelivered results.
On the same-store sales growth front, the company simply suggested the figure would be around 1% for the second quarter following a 1.1% improvement in that number for the first quarter of the year.
3 Things for Owners of WMT Stock to Mull
Not that the numbers don’t matter, but the true drivers of WMT stock at this point aren’t the numbers as much as they are the story behind the numbers. To that end, there are three key themes weighing in on investors’ minds most right now. In no particular order, the market may want to scrutinize the following during and after Tuesday’s conference call:
Pay raises: It seems like Walmart just can’t win when it comes to employee compensation. Long criticized for paying its associates too little, it bumped up its minimum pay to $9 per hour in April, and plans to ratchet its minimum pay to $10 per hour in February of next year. Now longer-term employees are grousing because the differential between newer employees and veteran employees is argued to inadequately reward workers who’ve been with the company for a long while. The number of hours worked is also falling for some employees. It remains to be seen how the company will respond, but it could mean an expensive undertaking could get even more expensive.
India: For the first time in three years, Walmart is planning to expand in India in a big way. Between now and 2020, the company says it aims to open 50 new wholesale stores in India under the Best Price moniker. The expansion suggests the company has found a way to reconcile its operation with rather strict Indian laws regarding the source of its merchandise.
E-commerce: Though the July 15 war between Amazon (AMZN) on its “Prime Day” and Walmart’s online-shopping-blowout-day response was fascinating, as a money-maker, it was irrelevant. As a microcosm of a much bigger war that Walmart is making headway in, however, it was very telling that so many observers felt Walmart won the battle. And yet, Walmart isn’t done carving out its piece of the online-shopping pie. That fact that Walmart took a play out of the Amazon playbook and built a new fulfillment center to ensure near-nationwide 2-day delivery speaks volumes about how serious the company is getting with online-shopping. The question is, what will the company do next to win back online-shopping market share?
Bottom Line for WMT Stock
While the initiatives are interesting, don’t let that detract you from the overarching reality — if Walmart really wants to turn things around, it ultimately needs to sell more merchandise at higher margins. Pay raises, e-commerce, and expansion in India are all a means to that end, but not the end.
In that light, first and foremost the retailer needs to continue getting more and more margin (and by extension, more revenue) out of its core bricks-and-mortar retailing business right here in the United States. This, however, is the toughest challenge the company is facing, and the repair work on its core business is only half done.
Of course, investing isn’t about where a company is. It’s about where a company is going, and at the very least Walmart is now facing the right direction.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.