North America

Earnings Preview: Wal-Mart Q3 2018 (WMT)

By: Craig Bowles

Overview

Wal-Mart Stores, Inc. (WMT) is slated to report 3Q 2018 (fiscal year) earnings before the bell on Thursday, November 16th. The earnings release is expected at approximately 7:00 a.m. ET with a pre-recorded call available at Wal-Mart Investor Relations. Results from the world’s largest retailer and constituent of the Dow Jones Industrial Average tend to heavily influence the direction of the equity index futures.

Outliers & Strategy

Key measures:

  • Earnings Per Share (EPS) from Continuing Operations: This value for this measure is most often the figure that compares with consensus estimates. Adjusted Earnings Per Share (EPS) is often available for 4Q and occasionally becomes the comparable value for other quarters. Guidance is $0.90 to $0.98. The Street estimate is $0.97. (Source: Yahoo! Finance) Consensus was $0.98 three months ago.
  • Revenues: Analysts expect an increase of 2.3% y/y to $120.89 bln (range $118.89 bln to $122.96 bln). (Currency headwinds reduced revenue by $1 bln in Q2 but that’s better than the nearly 3 bln for same quarter the previous year.)
  • US Wal-Mart Comparable Store Sales (ex-fuel): Guidance is 1.5% to 2.0%. Last year, Q3 weakened to 1.2% y/y.
  • Earnings Per Share (EPS) Guidance for 4Q2018: The current Street estimate is $1.33 (range $1.29 to $1.42).
  • Adjusted Earnings Per Share (EPS) Guidance for FY2018: Guidance in February was $4.30 to $4.40. The Street estimate is $4.37.
  • Wal-Mart’s trailing P/E of 21.4 compares to a five-year average of 15.0; Price/Book is 3.5 versus a five-year average of 3.1; Price/Sales 0.6 versus a five-year average of 0.5. Price/Cash Flow 9.7 versus a five-year average of 9.0. Dividend yield of 2.3% compares to a 5-year average of 2.6%.
  • Analysts view Wal-Mart with 14 (9 three qtrs. ago) Buy, 16 Hold, and 2 Sell ratings. (source: MarketBeat.com)
  • Insiders sold 51,666,834 shares the last three months and sold a net 166,680,817 shares in the past year. (source: NASDAQ.com) (Insider selling has been the norm since Sam Walton’s shares were distributed.) October 2017 announced another $20 bln two-year stock buyback. 2013 and 2014 each had $15 bln buybacks.
  • Wal-Mart results could also impact retailers, such as Target (TGT) – reports earnings the evening before – and Costco (COST).
  • Wal-Mart shares have a 1-day average price change on earnings of 3.61%. Options are pricing in an implied move of 3.86% off earnings.

Recent News

  • 11/07: Cowen reiterated an Outperform rating on Wal-Mart citing digital innovation, as well as its execution at physical locations. A worry is that satisfaction with customer service slipped two quarters in a row, according to a post on Barron’s.com.
  • 10/20: Walmart and Lord & Taylor started talks to give the department store its own space on Walmart.com, according to a post on BusinessInsider.com.
  • 10/10: Wal-Mart expects U.S. e-commerce sales to surge 40 percent in the next fiscal year as its online investments allow the addition of 1,000 online-grocery locations. Expects to see a total unit growth of 280 new, expanded or relocated stores, including 255 new stores in global markets such as Mexico and China. 2019 consolidated net sales are expected to grow at or above 3 percent, driven by comp-sales. Expects 2019 EPS to increase approximately 5 percent compared with fiscal year 2018 adjusted EPS, so the high end of guidance would suggest $4.62 for FY2019 vs analyst consensus of $4.63.
  • 10/03: Walmart reported a new addition to its delivery arsenal: the New York City-based delivery startup Parcel, a company that specializes in same-day and last-mile deliveries in hopes of utilizing the startup’s network and unique technology to expand deliveries for Jet and Walmart.com throughout NYC, according to a post on Zack’s.com.
  • 08/23: Wal-Mart said that it would start selling its products online through Google Express, a decision that will allow customers to order using Google Home, its equivalent to Amazon’s Alexa, according to a post on Barron’s.com.

Summary

With the economic expansion over eight years old, retail and other cyclical industries would normally be expected to struggle amid late-cycle pressures from inflation and increased consumer debt. The strong dollar previously weighed on revenue growth, so year-over-year comparisons will have it easier and probably is one reason Cleveland Research sees comp sales coming in at the high end of guidance. Walmart’s online efforts continue, and analysts are warming to the potential. The tech community is relatively small, so the folks at Walmart’s Jet.com and Amazon are often friends that may assist each other.  Insider selling is normal. Over the past four quarters, the company has beaten analyst consensus by an average of 2c. Estimize consensus for an EPS (possibly adjusted) of $0.99 on revenue of $121.498 bln compares to analyst consensus of $0.97 on revenue of $120.89 bln. Guidance is factored into the stock’s reaction.

 

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