Walmart Earnings Preview: Stock Lags Amid Big Overseas Investments

Retail giant Walmart reports earnings before market open on Thursday, August 16. Here’s a look at what might be expected from its Q2 results.

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Retail giant Walmart (WMT) is scheduled to report second-quarter earnings for fiscal 2019 before market open on Thursday, August 16. 

For Q2, WMT is expected to report adjusted EPS of $1.21 on revenue of $125.97 billion, according to third-party consensus analyst estimates. In the same quarter last year, adjusted EPS came in at $1.08 on revenue of $123.36 billion. 

When WMT reported Q1 results, U.S. comp sales increased 2.1%, while comp sales at Sam’s Club were up 3.8%. Walmart International sales increased 11.7% to $30.3 billion, helped out by foreign exchange tailwinds, and eight out of its eleven international markets posted positive comps. 

For the most part, analysts are expecting similar results from the retailer again this quarter. Some analyst estimates for U.S. comps are closer to 3% growth, since cold weather weighed on traffic in the first quarter.  Analysts are also expecting foreign exchange tailwinds to be muted in Walmart International as the U.S. dollar climbed higher over the course of the second quarter.    

One thing that’s been a big focus among analysts and investors is the company’s recent overseas investments. WMT announced in May it was buying a controlling stake in Indian e-commerce company FlipKart for $16 billion. Investors didn’t appear to react favorably to the deal as WMT dropped following the announcement. 

WMT previously said the investment in FlipKart is expected to negatively impact fiscal 2019 EPS by $0.25 to $0.30 if the transaction closes by the end of the second quarter. Management said they’ll update full-year guidance with this quarter’s release, so investors might get a better idea of how the FlipKart investment will impact short-term results.   

Part of the negative reaction to the deal was common concern among analysts that WMT that getting in competitive battles for overseas markets like China and India will be costly, as evidenced by the $16 billion spent on the FlipKart stake and WMT’s multibillion dollar investment in JD.com (JD). Both companies are also operating at a loss and analysts think it will take some time before the company starts to earn a return on those investments. 

Outside of its recent overseas investments, the company has been investing heavily in e-commerce initiatives, something that management has cautioned will weigh on profitability. WMT executives previously laid out a goal of 40% e-commerce growth in fiscal 2019. In Q1, WMT reported 33% growth in e-commerce sales. 

Online grocery sales have been one of the large components of the company’s e-commerce strategy. By the end of fiscal 2019, management said it plans to increase the number of locations that offer online grocery pickup from 1,000 to 2,100, as well as expand online grocery delivery to an additional 800 stores. 

Lagging So Far In 2018. After hitting a new all-time high of $109.98 at the end of January, WMT rapidly declined through the end of March and has been trading in a narrower range since. The stock has climbed higher from its 2018 low of $81.78, but shares are still down almost 8% year to date. The chart above shows WMT compared to the S&P 500 Index (SPX, purple line) and the S&P Consumer Discretionary Select Sector Index (IXY, teal line). Chart source: thinkorswim® by TD Ameritrade. Not a recommendation. For illustrative purposes only. Past performance does not guarantee future results.

Walmart Options Trading Activity

Around the upcoming earnings release, options traders have priced in a 3.9% stock move in either direction, according to the Market Maker Move indicator on the thinkorswim® platform. Implied volatility is on the lower end at the 31st percentile as of this morning.

In short-term trading at the August 17 monthly expiration, calls have been active at the 90 and 92.5 strike prices. Volume on the put side has been lighter in recent trading and concentrated at the 90 strike. 

At the  September 21 monthly expiration, call trading has been concentrated at the 90 and the 92.5 strikes. Again, volume has been lighter on the put side and trading has been spread out across a range of strikes with no activity that really stands out. 

Note: Call options represent the right, but not the obligation, to buy the underlying security at a predetermined price over a set period of time. Put options represent the right, but not the obligation to sell the underlying security at a predetermined price over a set period of time.

Next Up in Earnings

There are quite a few retailers scheduled to report earnings this week and next. These are some of the major companies with results coming up: 

    • J.C. Penney (JCP) and China e-commerce giant JD.com (JD) all report before market open on Thursday, August 16. Nordstrom’s (JWN) reports after the close the same day. 
    • Lowe’s (LOW) and Target (TGT) both report before the open on Wednesday, August 22.
    • Alibaba (BABA) is set to release results before market open on Thursday, August 23.

    If you have time, check out today’s Market Update for a look at what else is going on.

    Good Trading,
    JJ

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