It’s been a bumpy year for retail giant Walmart Inc. (NYSE:WMT). The company was praised for its dedication to building out its online offerings, but later disappointed the owners of Walmart stock with lackluster growth figures and a questionable commitment to its long-term goals.
While Walmart stock hasn’t risen above $100 per share since November 2018, WMT stock has gained 13% since reaching its 52-week low of $81.78 in December.
With WMT due to release its fourth-quarter earnings on Tuesday, many are wondering whether the company’s momentum can continue. Here’s a look at what to keep an eye on when WMT reports its results on Feb. 19.
The single most important aspect of Walmart’s results will be the company’s success or failure in the online space. That has been a huge focus for the company and a major part of its overall long-term growth outlook, so investors will want to see some progress in that area.
WMT has set a goal of increasing its online sales 40% year-over-year, so hitting that metric will be an important piece of the puzzle.
The growth of the company’s digital sales will also be a key component of its earnings report. In Q3, Walmart’s U.S. digital sales jumped 43%, and many believe that this data point shows that the company’s investment in improving its online business was worthwhile. It would be nice if the company’s U.S. digital sales grew at a similar rate in Q4, as it would confirm that Walmart’s digital business is continuing to quickly expand.
Another online business that’s important for Walmart stock is Flipkart, one of India’s largest online marketplaces. Walmart recently acquired a 77% stake in the site, and the site impacted Walmart’s results for the first time in Q3. While WMT didn’t specifically detail Flipkart’s results, management will likely comment on its impact on Walmart’s overall earnings.
While Flipkart will likely drive WMT’s efforts to grow its digital business, the acquisition could also hurt Walmart’s full-year EPS. Management lowered its 2018 EPS guidance to $2.26-$2.36, largely due to the Flipkart acquisition.
When it comes to WMT, as with all retailers, the other big number that the owners of Walmart stock will be scrutinizing is same-store sales. WMT is expecting its full-year comparable sales to rise 3% or more, a full percentage point ahead of where the company believed it would be at this time last year.
Walmart has a tough act to follow, as its comp sales were strong in Q3. Owners of Walmart stock will want to see its comparable store sales growth stay the same or rise in Q4 , driven by a mix of rising store traffic and higher average spending per customer.
Investors will also be looking for management to comment on Walmart’s grocery-delivery business during the earnings call. As online-grocery ordering continues to gain momentum, WMT will have to address reports that it hasn’t been able to create a delivery system that works. Deliv, one of Walmart’s delivery partners, backed out of its partnership with the retailer, saying that its drivers were spending too much time waiting at Walmart stores to pick up items.
While Walmart still has a variety of other delivery partners, investors will want management to address the issue as they’re expecting to see the company continue to expend its delivery offerings in 2019. Right now WMT offers same-day delivery from a handful of its U.S. locations, but that figure has to grow significantly if the company wants to keep up with Amazon (NASDAQ:AMZN) on the grocery front.
The Bottom Line on Walmart Stock
Walmart stock has made a meaningful comeback since falling below $90 at the end of 2018, but all of those gains could be lost if WMT misses the mark this earnings season. The market is precarious right now, making quarterly results even more dangerous. Walmart looks on track to meet expectations, but any misstep could be disastrous.
Building out an online empire is expensive and takes time, which the owners of Walmart stock found hard to swallow last year. However, if the company’s online sales are solid and its comps rise around 3.5%, WMT stock is unlikely to nosedive again.
As of this writing, Laura Hoy was long AMZN.