Earnings season shifts to the big retailers, as the first of the so-called big-box chains—Walmart— prepares to report. Analysts eyeing holiday sales totals, as well as grocery and e-commerce.
Retail earnings have been trickling out in recent weeks but will begin flooding in soon, with Walmart (WMT) among the first big-box merchants to reveal, well, what’s in the box.
Contrary to popular belief, Amazon (AMZN) isn't a bigger player in the retail game than WMT. The Arkansas-based chain founded in 1962 still holds the No. 1 spot and has long been among the most widely watched retail bellwethers. It’s likely to be watched closely this coming Tuesday morning (Feb. 18) when it unveils results from its most recent quarter that ended in Jan 2020.
WMT historically has done best during economic down times when consumers are saving nickels and dimes. But as the “Save Money. Live Better.” discount retailer goes head-to-head with AMZN, not to mention its other biggest retail competitor Target (TGT), it appears to be showing that it, too, can roll in the good times
But there are a number of immediate issues and headwinds facing WMT that a number of analysts have said they’ll be looking for insight on: Holiday sales, coronavirus, and grocery sales among them.
FIGURE 1: WALMART VS. CONSUMER STAPLES. Walmart shares (WMT-candlestick) generally led the Consumer Staples sector (IXR-purple line) up until early 2020. In early Jan. 2020 the tides seem to have reversed with IXR outperforming WMT. The uncertainty brought about by the coronavirus may have given a boost to the overall consumer staples sector. Data source: S&P Dow Jones Indices. Chart source: The thinkorswim® platform from TD Ameritrade. For illustrative purposes only. Past performance does not guarantee future results.
Analysts have remained mostly cautious on WMT’s post-holiday expectations, thanks to TGT. That discount retailer was expected to have a blow-out holiday season, but said it came up short with what TGT Chief Executive Brian Cornell called a “tough miss.” Turns out the quarter proved “even more challenging than expected,” he said in a blog post.
Was that WMT’s Q4 experience too? Overall retail sales were robust, according to the National Retail Federation, and WMT has already let it slip that Black Friday sales were quite strong.
But NPD Group, an industry tracker, said sales of key gift areas—think electronics and apparel —barely edged up 0.2% in the November/December shopping period, short of forecasts.
And if that was the case during the hottest shopping season of the year, what might be happening now? And could the coronavirus situation affect product availability if it doesn’t improve soon? When there’s nothing to put on the shelves, it means there’s no reason to come out to the stores. The virus’ impact could put WMT—and every other retailer for that matter—in a tough situation come spring.
WMT has outpaced earnings expectations 14 out of the last 15 quarters, including the last seven. Can the retailer do it again? Analysts expect, on average, WMT will post a per-share earnings of $1.44, up 2.1% on a year-over-year basis. Revenues are forecast to climb 2.7% to $142.57 billion.
Speaking of the coronavirus, hardly an hour in the day goes by when there’s not some sort of news on this deadly virus. Multinationals like WMT that depend on China for goods and for sales are projected to get hit hard, mostly because of inventory and logistics issues, analysts say.
Already, ports have been reporting delivery slowdowns. In a note this week to clients, Wells Fargo (WFC) analysts led by Edward Kelly issued a warning call of sorts directed primarily at WMT and TGT. In short: Supply issues caused by coronavirus will hit those retailers first and could result in empty shelves as soon as April, the WFC analyst note said.
While WMT, like many of its competitors, had already been preparing for supply issues because of tariffs and the Lunar New Year, which occurred a few weeks ago when China basically shuts down.
“Our sources indicate that out-of-stocks at retail for replenishment product could start within 60 to 90 days if disruptions continue beyond the next few weeks,” according to the WFC report. What’s more, it noted that the trouble could get worse with “more significant inventory issues in seasonal product possibly by midsummer if disruptions stretch longer.”
Because WMT relies on shorter lead times to replenish stock, usually done to stay on top of changing consumer interests, it could be one of “the first to experience out-of-stock issues,” the report said.
WMT is known to source merchandise from a wide array of countries and suppliers. Investors may want to know how top brass may be preparing for the worst.
Grocery sales have fed the top line for WMT since it began putting a stronger emphasis on them amid the challenges that AMZN’s Prime membership and Whole Foods stores have created. Already, grocery sales ring up 56% of the company’s total U.S. revenue and delivery is improving. A Morgan Stanley (MS) analyst said that WMT captures a significant amount of industry sales—grabbing $0.20 of every dollar spent on food.
“Groceries (are) playing a great role in e-commerce growth,” Tom Ward, senior vice president of central operations for WMT, said on CNBC in January. To boost that growth by creating more efficient operations, WMT has been testing a platform it calls Alphabot since last year.
It’s a pick/pack/deliver system for online grocery orders that’s being assessed in Salem, New Hampshire. Ward said it’s being tweaked regularly ahead of a bigger rollout.
So far, so good? “We’re seeing that customers really enjoy using the service and that’s why we keep trying to innovate in the space,” Ward said. “We’re really pleased with what we’ve seen in the last 12 months.”
Overall, analysts mostly expect WMT to meet expectations, given the seven-quarter streak of beating them. But remember: Past performance is no guarantee of future results. Stay tuned.
When WMT releases results, it’s expected to report adjusted earnings per share of $1.44, up 2.1% on a year-over-year basis. Revenues are forecast to climb 2.7% to $142.59 billion.
The options market has priced in an expected share price move of 3.6% in either direction around the earnings release.
Looking at the Feb 21 expiration date, much of the activity has been to the upside, with concentrations at the 120 and 125 call strikes. Puts have been active at the 110 strike. The implied volatility sits at the 62nd percentile as of Thursday afternoon.
TD Ameritrade Network is brought to you by TD Ameritrade Media Productions Company. TD Ameritrade Media Productions Company and TD Ameritrade, Inc. are separate but affiliated subsidiaries of TD Ameritrade Holding Corporation. TD Ameritrade Media Productions Company is not a financial adviser, registered investment advisor, or broker-dealer.
for thinkMoney ®
Financial Communications Society 2016
for Ticker Tape
Content Marketing Awards 2016
Content intended for educational/informational purposes only. Not investment advice, or a recommendation of any security, strategy, or account type.
Be sure to understand all risks involved with each strategy, including commission costs, before attempting to place any trade. Clients must consider all relevant risk factors, including their own personal financial situations, before trading.
Probability analysis results from the Market Maker Move indicator are theoretical in nature, not guaranteed, and do not reflect any degree of certainty of an event occurring.
TD Ameritrade and all third parties mentioned are separate and unaffiliated companies, and are not responsible for each other’s policies or services.
Inclusion of specific security names in this commentary does not constitute a recommendation from TD Ameritrade to buy, sell, or hold.
Market volatility, volume, and system availability may delay account access and trade executions.
Past performance of a security or strategy does not guarantee future results or success.
Options are not suitable for all investors as the special risks inherent to options trading may expose investors to potentially rapid and substantial losses. Options trading subject to TD Ameritrade review and approval. Please read Characteristics and Risks of Standardized Options before investing in options.
Supporting documentation for any claims, comparisons, statistics, or other technical data will be supplied upon request.
This is not an offer or solicitation in any jurisdiction where we are not authorized to do business or where such offer or solicitation would be contrary to the local laws and regulations of that jurisdiction, including, but not limited to persons residing in Australia, Canada, Hong Kong, Japan, Saudi Arabia, Singapore, UK, and the countries of the European Union.
TD Ameritrade, Inc., member FINRA/SIPC. TD Ameritrade is a trademark jointly owned by TD Ameritrade IP Company, Inc. and The Toronto-Dominion Bank. © 2020 TD Ameritrade.