Walmart’s Eye on Consumer Could Offer Insight into Holiday Shopping

WMT earnings are expected to be modestly higher over the year-ago results.

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In the battleground for the consumer that Amazon (AMZN) helped create over the last two decades, Walmart (WMT) has been fighting toothbrush and nail to keep a competitive edge.

Despite AMZN’s heavy artillery in the e-commerce skirmishes, WMT has figured out a way to forge a good fight, if numbers from the last couple of years are telling. But it has cost a pretty penny in the process.

WMT’s been on a relatively impressive run, both in positive earnings surprises and stock performance. The stock is up nearly 28% year to date and hit an all-time high above $120 a share last week.

The world’s largest retailer has beaten per-share third-party consensus estimates in 10 of the last 11 quarters, six of them consecutive. And it has posted six straight quarters of comparable store sales growth, a key measure of sales at stores open longer than a year.

Also, consumers appear to remain healthy, and that’s been mostly a boost for retailers. According to media sources, Alibaba’s (BABA) annual Singles Day, the world’s largest one-day shopping event, chalked up about $38 billion in sales—a new record. Another item worth noting: American retailers and brands took the number-two spot behind China in terms of sales on Singles Day. There had been concern from some analysts that Chinese consumers might avoid U.S. goods due to the ongoing trade war. In other words, if there’s a global slowdown and trade war happening, it’s hard to tell from these figures. The question is how much all this benefits WMT.

How’s that Sales Momentum?

In Q2, WMT’s same-store sales growth slipped below 3% for the first time in six quarters, which partly reflected softness in international sales in the United Kingdom and Canada. However, same-store sales that quarter did beat analysts’ estimates.

WMT reported a 37% jump in digital sales during Q2, and Chief Executive Doug McMillon sounded enthusiastic about progress in that area: “Customers are responding to the improvements we’re making...and we’re gaining market share,” he said in the earnings release.

It could be interesting to see if WMT was able to match that torrid pace in Q3 online sales growth, and how it’s doing on e-commerce market share.

It might also be worth listening for WMT’s update on the international segment as well as the company’s thoughts on the elephant in the room: China. As the tariff wars between the U.S. and China continue on their rocky path, the question is how WMT is weathering the storm.

Questions might center around the possibility of new tariffs on consumer goods expected to take effect in mid-December. The U.S. is scheduled to levy 15% tariffs on about $156 billion of Chinese products on Dec. 15, including cellphones, laptop computers, toys and clothing, Reuters reported. Some of these items are the stuff people buy at WMT every day.

Can Walmart Beat Amazon at the Delivery Game?

Another development possibly worth watching is WMT’s Unlimited Grocery Delivery program that it launched last week, a same-day delivery move intended to compete with AMZN’s new one-day Prime delivery. The program, which started in some 1,400 stores, costs $98 for an annual membership service or a $12.95 monthly fee for door-to-door delivery. 

Mark Lore, WMT’s head of e-commerce, said at Recode’s Code Commerce in September that WMT’s hefty investment in Unlimited Grocery Delivery could be worth it if combining WMT’s low prices on groceries with unlimited same-day delivery is a game-changer for habitual weekly shopping at Walmart.com.

Analysts say they’ll be listening to whether WMT believes it can, eventually, upend AMZN’s Prime delivery, even if it loses money in the beginning. Prime delivery has often proven to be an expensive investment for AMZN, but some analysts think it might have long-term benefits.

Consumer Barometer

WMT will deliver its quarterly numbers Thursday, ahead of the market opening ahead of the Commerce Department’s monthly retail sales results on Friday. While consumers continue to look healthy, last month’s numbers might give insight into how they’re expending those dollars.

And, with more than 4,700 stores in the U.S., WMT might offer a good barometer on consumer spending all on its own and is likely to have some insight into what to expect during the holiday shopping period, what can be a make-it-or-break-it juncture for many retailers.

With a shortened holiday shopping period this year, WMT kick-started the spending extravaganza late last month—“earlier than ever,” the company said—with what it called Early Deals Drop on Walmart.com and analysts said they expect to hear the, well, early results of that.

WMT Earnings and Options Data

The options market has priced in an expected share price move of 3.7% in either direction around the earnings release, according to the Market Maker Move™ indicator on the thinkorswim® platform. 

Looking at the November 15th expiration, put activity has been highest at the 115 strike. Calls have seen a bit more activity, with concentrations at the 120 and 125 strikes. The implied volatility sits at the 54th percentile as of Wednesday morning. 

Analysts expect WMT to post a per-share profit of $1.09, higher by a penny, or less than a 1% year-over-year increase on sales of $129 billion, a better than 3% gain over the year-ago results.

Consider watching WMT’s guidance to see if there’s any change from last quarter. Back then, WMT said fiscal 2020 adjusted earnings per share would range between a slight decrease to a slight increase. And it said fiscal 2020 same-store sales in the U.S. would likely be in the upper end of its prior guidance range for 2.5% to 3% growth. Any sign of it rising from here might suggest improving sales momentum.

Good Trading,
JJ
@TDAJJKinahan

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