Don’t Shun Wal-Mart Stores Inc (WMT) Stock After Q2 Earnings Selloff

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WMT stock - Don’t Shun Wal-Mart Stores Inc (WMT) Stock After Q2 Earnings Selloff

Source: Mike Mozart via Flickr

Wal-Mart Stores Inc (NYSE:WMT) released its second-quarter earnings before Thursday’s bell, and based on the 3% decline in WMT stock, you’d guess the retailer put out a dud of a report.

Wal-Mart Stores Inc (WMT) Stock Shunned Despite Stellar Q2 Earnings

You’d be wrong.

All things considered, Walmart hasn’t given shareholders much to complain about of late. Yes, red flags were rightfully waving in 2015 after years of neglect and bad decisions finally caught up with the retailing behemoth. But a concerted effort to fix all that was broken has translated into modest sales growth for the past year and a half, and modest earnings growth for the past half-year. Walmart stock was up 44% between its late 2015 low and Wednesday’s close.

Thursday morning’s Q2 earnings report once again justified that rally, but not by enough. WMT stock was down a bit in early trading action despite topping revenue and profit expectations in its second quarter, as guidance was lackluster.

Walmart Earnings Recap

For the quarter ending in July, the world’s biggest retailer turned $123.4 billion worth of revenue into a per-share adjusted profit of $1.08. That top line was up 2.1% year-over-year and beat expectations for $122.72 billion. The bottom line, meanwhile, was a penny better than the consensus estimate and the year-ago quarter’s profit. However, some Wall Streeters were actually quietly looking for $1.08 per share of WMT stock.

On a constant-currency basis, sales would have rolled in at $124.4 billion, and last quarter’s GAAP profit was 96 cents per share.

E-commerce revenue — which had been one of the company’s weak links until recent initiatives — was up 60% on a year-over-year basis, while total unit sales for its online operation were up 67%. Walmart grew e-commerce revenues by 63% YOY in the first quarter of 2017.

Perhaps most important, same-store sales in the United States were up 1.7%, in line with expectations. The company had offered same-store sales guidance of between 1.0% and 2.0% a few weeks ago, factoring in its Sam’s Club division. That was the 12th consecutive quarter same-store sales were positive, largely confirming the retailer has rediscovered a winning formula.

CEO Doug McMillon commented on the second-quarter numbers:

“Our customers are responding to the improvements in stores and online, and our results reflect this. Traffic increases at store level and the eCommerce growth rate are key highlights. We are moving faster and becoming more creative as we strive to make every day easier for busy families.”

It Just Works

WMT stock has been a tough name to handicap of late, at least partially because it’s been a moving target.

Chief among those changes McMillion alluded to has been much-needed growth of its e-commerce arm. The retailer has shelled out billions of dollars to better compete against the growing dominance of online-shopping venue Amazon.com, Inc. (NASDAQ:AMZN).

At the same time, the company has been compelled to fend off a rekindled competitive threat from the nation’s second-biggest discount chain Target Corporation (NYSE:TGT). Target, once plagued by its own missteps, had been struggling. Its Wednesday morning earnings report, however, made it clear that Target is at least doing some things right that Walmart will need to counter.

That said, Walmart continues to counter.

One of those initiatives is venturing into new online venues. For instance, earlier this year Walmart acquired upscale men’s clothier Bonobos, putting the retailer in touch with a demographic that isn’t its typical target market. Walmart also reportedly is interested in an acquisition of Birchbox, which sells beauty and grooming products on a subscription-basis.

It remains to be seen if these and other deals will better equip the company to stave off Amazon, though the company is getting traction with its online effort.

In the meantime, WMT finally is able to start judging March’s launch of what it calls “Pickup” … an initiative that offers discounts on online orders shoppers have shipped to a store rather than delivered to their home. Those consumers are more apt to mill around a store and purchase something else once they’re already in the building.

To that end, retail metrics company Consumer Tracker observed in its latest survey that not only had Walmart’s foot traffic deteriorated of late, but satisfaction with its service and prices had fallen since the previous survey. It’s possible WMT is getting sloppy again simply by virtue of so many different initiatives on the table. If that’s the case, however, Walmart has yet to see any ill effect. Last quarter’s foot traffic was up 1.3%.

Looking Ahead for WMT Stock

Walmart’s weakness in Thursday’s early action suggests the company still needs to do better.

For the quarter currently underway, analysts were collectively looking for earnings of 98 cents per share and sales of $120.81 billion. WMT said it’s looking for income of between 90 and 98 cents per share. However, the retailer might be lowballing itself to ensure it at least meets expectations, if not beats them. The retailer earned 98 cents per share in last year’s Q3, while the forecast top line would be 2.2% better than the year-ago period.

For the full year, analysts are modeling a bottom line of $4.37 per share on sales of $495.49 billion, both of which would be slightly better comparisons. Walmart’s guidance is for between $4.30 and $4.40 in per-share profits, with same-store sales expected to grow between 1% and 2% (factoring in Sam’s Club revenue).

Odds are good that Walmart will once again meet or beat those expectations.

The stock’s retreat despite solid Q2 results implies that traders were going to take profits on their positions anyway. It might be best to let that sentiment take its course and fully play out before wading into WMT stock, if you’ve been waiting on the sidelines.

In the meantime, today’s lull and the second quarter’s results aren’t exactly a rallying cry for true long-termers to get out of their position.

As of this writing, James Brumley did not hold a position in any of the aforementioned securities. You can follow him on Twitter.


Article printed from InvestorPlace Media, https://investorplace.com/2017/08/dont-shun-wal-mart-stores-inc-wmt-stock-after-q2-earnings-selloff/.

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